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Seattle Minimum Wage Study Has Serious Flaws (washingtonpost.com)
"Remember the story from last week about how the new Seattle minimum wage law was hurting workers?" writes Slashdot reader PopeRatzo. "Well, it turns out that there are some problems with the study's methodology." The Washington Post reports:
First, their data exclude workers at businesses that have more than one location; in other words, while workers at a standalone mom-and-pop restaurant show up in their results, workers at Starbucks and McDonald's don't. Almost 40 percent of workers in Washington state work at multi-location businesses, and since Seattle's minimum wage increase has been larger at large businesses than at small ones -- right now, a worker at a company with more than 500 employees is guaranteed $13.50 an hour, while a worker at a company with fewer than 500 employees is guaranteed only $11 an hour -- these workers' exclusion from the study's results is an especially germane problem (note that low-wage workers in Seattle have had an incentive to switch from small firms to large firms since the minimum wage started rising).
In earlier work, in fact, the University of Washington team's results were different depending on whether these workers were included in their analysis; including them made the effects of the minimum wage look more positive. Second, the University of Washington team does not present enough data for us to assess the validity of its "synthetic control" in Washington -- that is, the set of areas to which they compare the results they observe in Seattle. The Seattle labor market is not necessarily comparable to other labor markets in the state, and given some of the researchers' implausible results, it's hard to believe the comparison group they chose is an appropriate one.
Suggesting Seattle's booming labor market may have skewed the study's results, two nonpartisan economists concluded it "suffers from a number of data and methodological problems that bias the study in the direction of finding job loss, even where there may have been no job loss at all." And the Washington Post also notes the researchers' findings are suspiciously "out of step with a large body of research," including another study from U.C. Berkeley researchers [PDF] which determined Seattle's wage increase "is having its intended effect."
In earlier work, in fact, the University of Washington team's results were different depending on whether these workers were included in their analysis; including them made the effects of the minimum wage look more positive. Second, the University of Washington team does not present enough data for us to assess the validity of its "synthetic control" in Washington -- that is, the set of areas to which they compare the results they observe in Seattle. The Seattle labor market is not necessarily comparable to other labor markets in the state, and given some of the researchers' implausible results, it's hard to believe the comparison group they chose is an appropriate one.
Suggesting Seattle's booming labor market may have skewed the study's results, two nonpartisan economists concluded it "suffers from a number of data and methodological problems that bias the study in the direction of finding job loss, even where there may have been no job loss at all." And the Washington Post also notes the researchers' findings are suspiciously "out of step with a large body of research," including another study from U.C. Berkeley researchers [PDF] which determined Seattle's wage increase "is having its intended effect."
And he should be dropped out of a helicopter.
Looks like there are a lot more of them in the comment section. This should result in a major boom in helicopter fuel companies.
Except that it doesn't make sense in economic theory.
Supply-side, Chicago School and Austrian School are not economic theory - they have both been utterly debunked.
For higher wages to drive inflation: the potential profit from new customers (higher-earning workers at other businesses) must be less than the cost of the higher wages. This cannot happen with moderate wage increases -in fact mathematically it only becomes likely at truly insane raises. Otherwise the businesses will make more money by absorbing the cost and selling more goods at lower margins.
For higher wages to drive job-loss -they must be so severe that it's no longer possible to operate the business at all. Contrary to what you think economic theory is - hiring rates are relatively independent from the cost of labour because companies need to meet demand in order to stay in business. The amount of work that needs to be done is therefore the primary driver of hiring. Assuming the company is meeting current demand if the cost of labor goes down the company won't hire more people, so why would they fire people if it goes up ? Both decisions would cost them money ! A company will expand if it can credibly determine that there is unmet demand. Not because workers are cheaper. There's no point in having workers make goods you can't sell, anymore than there is any sense in having to turn customers away because you don't have enough workers to make the goods for all the customers. The impact of labour cost on hiring levels then is miniscule.
In theory the wage increases should, actually, increase demand and make expansion more likely - more people with more money means more of them can potentially be your customers.
All in all - study after study after study has consistently found that moderate increases in minimum wage have a nett-zero effect on employment rates, and this is also born out by historical data.
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