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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 the Washington Post also notes the researchers findings are suspiciously "out of step with a large body of research
As in, "the large body of research" where 79% of economists agree that "a minimum wage increases unemployment among young and unskilled workers"? This is undergrad economics at any college worth its salt.
You misunderstand what a free market is.
Free market means that governments or regulatory bodies cannot set the PRICE of goods and services. There's nothing wrong in setting minimum acceptable standards.
Ex: Sure.. mandate $150/Hr. then businesses can choose to either sell at existing price+$150, get rid or replace some employees and sell at same price.
Get it? the final PRICE is what's free to be decided by businesses.
Minimum wage and free markets can co-exist. Imagine if businesses said "Hurr-durr how dare government say I have to keep my premises clean huh? this is a free market dammit!"
As with code "smells", the response to the Seattle study suffers from study "smells."
It seems the people want a certain outcome, namely, that increasing the minimum wage puts more money in the pockets of working persons trying to get by. I mean, who can be against that apart from some mean-spirited Conservatives and clueless Libertarians, no?
But isn't science supposed to be about where the data lead instead about what we want the outcome to be? This study isn't what we want to hear so oh noes, the study has flaws and it doesn't agree with all of those other studies.
I am sure this study has flaws along with every other data-collection and interpretation effort in the social sciences. My concern is with the confirmation-bias-y tone of the parent post, like the Wild West prospector who sees a few yellow sparkles and starts hopping up in down, "There's goooolllld in them thar heels!"
Most businesses pay minimum wage because they can. Not because they have to in order to stay in business.
When Walmart raised their worker's pay to $10/hour, they didn't go out of business and they are still very profitable.
There are a lot of desperate people out there who really want the work and will just about work for any pay. I've seen them wait in line at 5AM with the hopes of being called in and working on the line packing video games. Those bastards took advantage of them. They make a killing on those games and they couldn't pay a decent hourly rate?
Oh, and if there wasn't any work, sorry! Come back tomorrow and see. And they had to wait in security unpaid and wait until the line started - unpaid. So, they were at work for at least an hour and half every day - unpaid. 2 or more hours if they actually worked.
No, the lowest levels of our working people are being shit on because they can be shit on.
You have to explain to journalists at the WaPo that "Maybe hurting some hourly workers", and "Some companies maybe cutting hours" meant that it didn't include all businesses such as McDonalds and Starbucks who play by a special and exclusive set of rules. They are part of that "elite" and "special" group and comparing them to smaller mom and pop businesses is like comparing apples and oranges.
The real story on this should be about how USA Today failed to make the bias known to readers. But then we wouldn't be feeding those snarky know-it-alls at the Washington Post now would we?
...This is taught in introductory economics courses...
...and makes intuitive sense...
... to some people it makes intuitive sense that the earth is flat but gut feelings are not a scientific method.
sudo rm -r -f --no-preserve-root /
Since forever.
A person can't simply decide not to work and die instead.
Labor isn't a supply & demand market; it's supply (laborers) is fixed, giving the demand (employers) limitless bargaining power.
That is why there are things such as social wellfare and minimum wages.
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So reading between the lines, the study's results were largely correct when talking about small businesses, higher minimum wage hurts small business. But it doesn't matter, according to these idiots because McDonalds isn't affected by it as much as true small businesses. Since when are we vouching for McDonalds and Wal-Mart as good corporate citizens?
You can't lump in McD and Starbucks because even though they do employ minimum wage, they will employ minimum wage regardless of the cost. They are large enough enterprises with high enough profit margins to absorb these costs and in the process drive out any competition from small business, which is exactly what McD and Walmart do when they're coming to a new market anyway, they operate at a loss until all the competition has starved out.
I'm surprised actually that McD, Starbucks and Walmart don't actively drive minimum wages up just so they can completely drive out every other local business. If I were an 'evil CEO', I'd do that and then when I have 90% of a market, I'd lobby to get it reduced again or even just to get my company excluded.
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Imposing a minimum wage that's greater than what results from an efficient market should result in higher pay but fewer workers.
This is where things get muddled. There's a difference between an optimally efficient market and an optimally efficient organization. An optimally efficient organization may do things like pay workers the least amount possible, avoid paying corporate taxes by moving assets to offshore accounts, and automating many jobs. Now, if many workers are give poverty wages, that may pad employment statistics but it certainly doesn't provide the market as a whole with an optimal solution. When people don't have much of a discretionary income they can't buy many things and they certainly can't take out loans (if you want an optimally efficient marketplace, you want people to be able to take out loans because loans are what create more money).
The problem with companies relocating money into offshore accounts to avoid taxes compounds this problem because their poverty-wage workers need welfare to provide them with healthcare, food supplements, and other aid such as childcare that they can't afford with their job. This problem is further compounded by the hoarding of liquid assets by executives. Without a strong progressive tax system (and all the many loopholes that allow one to avoid the intentions of our weak progressive tax system), those who make the most have such a surplus of liquid assets that most of them just sit in a bank account. While this looks good on paper, as the interest they gain increases the money supply, this surplus of money doesn't help the economy because it's not being exchanged on the marketplace. This is the problem with wage disparity. If executives made less and low-wage workers made more, then more money would be exchanged in the economy and it would create more wealth. It's a fallacy to assume that corporations and millionaires reinvest their excess profits. At some point one has all they need/want and excess wealth just gets hoarded in bank accounts.
Finally, when it comes to automating new jobs, this rarely (if ever) results in the remaining jobs reaping the benefits of the increased efficiency. The money saved goes to the top, to those executives who are already hoarding more money than they come close to spending.
The problem with a lot of the formulas you learn in introductory economics is they are based off assumptions. Furthermore, economics can make an abstraction of human life. What may look good on paper can be a miserable existence for many. I find economics to be an extremely interesting field that provides tools for evaluating systems that cannot be adequately assessed using science, but perspective is necessary when applying these ideas. Too often we can't see the forest for the trees.
"From the depths of my skeptical and rationalist soul, I ask the Lord to protect me from California touchie-feeliedom."
This is actually a known and well understood problem in engineering disciplines. The optimum for an entire process is NOT the same as the optimum for each part of a process. Usually the two are not even related. That is why we have things like Whole Process Optimization. This was a basic part of my classes for chemical engineering and drilled home in quite a number of assignments and projects.
What I don't get is why is this a surprise to people in other fields or in economics. If you want a system to work efficiently you have to optimize for the entire system not just tiny parts of it. With society that is a very complex problem and requires a lot of analysis so you do have to simplify to some extent but the more variables you take into account and MEASURE the more likely the system is to work.
Right now I see companies doing what is best for them and then trying to justify that it means it is also best for the system. This is a losing proposition and without some kind of external correction the system will end up tearing itself apart.
Computer modeling for biotech drug manufacturing is HARD!
No, what we have here (your message) is a hyper partisan upset the one study that confirms his pre-existing bias turned out to be deeply flawed. Of course this article must seem like a liberal conspiracy! The one (and only) study showing job losses just has to be true.
This same thing happens with anti-vax and climate change denial. People who really want to believe these things cling to a small number of discredited studies and insist the large number of others contradicting their views don't exist.
Numerous states and cities have passed substantial minimum wage increases. Most are still gradually phasing in, many reaching $15 around 2020 to 2022. Plenty more studies will be published over the next several years.
I have a feeling you're going to be quite busy denying more and more of them as liberal conspiracy.
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This is basically what Ford did in his production plant back when the Model T was the craze. He paid an insanely high wage, which led to very few sick days and near perfect retention, because people would have rather killed themselves than losing a job that paid about twice of what they could otherwise earn. This in turn led to very high productivity because people knew what they were doing, which also led to much higher product quality and very low waste.
Higher wages will make people move to the area if possible, and they will also want to keep their jobs. And people with money spend it, and spend it locally which in turn drives the economy.
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That is from various polls from non cited source in a text book (" I include a table of propositions to which most economists subscribe, based on various polls of the profession") and limiting the scope of the proposition in the poll on young people is suspicious. What is the overall effect for example is not cited. And frnakly polls are useless they only represent what people EXPECT, they do not represent what study finds.
Call me crazy but I am untrusting your blogspot source about polls, and expect peer reviewed litterature, just for the reason that at least peer review and publishing allow to uncover the flaw cited in the summary.
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visit randi.org
How is the UW study to be considered flawed for excluding multi-site businesses while the UCB study ONLY looks at restaurants, where in many of which, minimum wage doesn't even apply?
That doesn't work any more thanks to entitlements. The reality is that making twice of minimum wage isn't worth it. All it does is reduce your government assistance. Be it child care, rent reduction, food stamps, college assistance, etc. I'm not saying these things are bad, just that things aren't as simple as make a little more, lead a better life.
Mom and Pop places are not required to pay the new minimum wage in Seattle. That is the problem with the study. It doesn't include employees actually making the new minimum wage. Seriously, SlashDot used to be a place for intelligent discussion.
once more into the breach
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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That doesn't work any more thanks to entitlements. The reality is that making twice of minimum wage isn't worth it. All it does is reduce your government assistance.
Yes, that's just another argument in favor of MGI. If everyone gets it, not only do we not need a minimum wage at all, but people aren't motivated not to do work so that they can keep their assistance. They won't lose it if they make some money.
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
But since nobody is actually proposing that- it's meaningless to study it.
What DOES make sense is to study what effects small and moderate minimum wage increases have on employment - since those are what actually happens.
Nobody would set such a high minimum wage because everybody knows it's insane and would have terrible effects. But it does not logically follow that a small increase would have the same bad effects.
Your bathtub is at 25C. Increasing the temperature of your bathwater by 100C would kill you, increasing it by 3C just makes for a nicer, more comfortable bath. Small interventions do not always have the same effects as a large version of the same would have.
The overwhelming evidence is that moderate minimum wage increases have little to no impact on overall employment rates. It makes sense too - what business would choose to LOSE money by firing people it needs and losing out on sales because it couldn't produce enough goods ?
A business would only start looking at layoffs if the increase is so big that they would lose MORE money paying those people than they will lose turning away customers (and that's BEFORE we even consider the possibility of having more customers when wages go up).
Unicode killed the ASCII-art *
This is an entirely baseless claim. There is an external correction system and economists have been well aware of it for quite some time. The term being externalities. This typically refers to parts of the economic process that cannot be regulated by supply and demand mechanisms alone and require collective action, i.e. a government. A classic example of this is pollution controls. You can't expect the individuals to, as people like to say, "vote with their wallets" on whether the factory next to them should be pouring poison into a nearby river. By electing official to represent them and agreeing to abide the authority of the said individual, the externality can be addressed, e.g. through fees per barrel of poison added to the river, and the externality is said to be internalized.
I would suggest you actually take a course in a subject before you lambast us for being as smart as you.