Mounting evidence shows minimum wage increase actually boosts jobs

March 22, 2017 | John Burbank

Last November voters overwhelmingly approved Initiative 1433 to increase the minimum wage and establish a statewide standard for paid sick days. Initiative 1433 raised the minimum wage to $11 an hour on Jan. 1, 2017. That was an increase of $1.53 from what it was on Dec. 31, 2016. That’s a 16 percent raise.

It is relevant to ask: What was the impact of this increase on jobs? After all, economists predict, using simple theoretical modeling, that an increase in the minimum wage will result in a decrease in jobs.

In early March the Department of Employment Security released January employment data — perfect information for calculating the impact of the minimum wage! It makes the most sense to compare job data from January 2016 with job data from January 2017, to take into account seasonal variation. (You can imagine there is a big change in shopping after the December holidays.)

That 16 precent increase in the minimum wage does not seem to have made much of a dent in jobs. In fact, jobs increased between 2016 and 2017. Employment grew by more than 100,000 jobs statewide. Employment in Snohomish County grew by 16,000 jobs. The unemployment rate fell from 4.9 percent to 4.2 percent.

How about in occupations in which minimum wage workers are clustered, like retail jobs? In retail, jobs grew by almost 16,000 jobs between January 2016 and January 2017. There were 1,000 more jobs in retail in January 2017 than in December 2016 — that is just in one month, after the Christmas holidays. Restaurant and bars employed 9,000 more workers in January 2017 than the previous January.

I thought I would ask a restaurant owner (rather than an economist) to explain this data. She told me that she was switching to a $15 minimum wage in April. Instead of tips, they will have a service charge. This will enable her to spread wage increases to back of the house workers, and keep the wait staff as well. Workers stay in jobs that pay better. They are more invested in their work. They do better jobs. Customers are more satisfied. Employers spend less money for recruitment and advertising for workers and training them. It is a business model that works. Moreover, it puts more money in the pockets of minimum-wage workers, who are apt to spend that in the local economy, stimulating sales, and, of course, more sales jobs!

Therefore, it should be no surprise that increases in the minimum wage result in job increases. It is a matter of actual human behavior in the private market, not an imaginary economic model.

There are about a half-million workers in our state who directly benefit from the increase in the minimum wage, and another 250,000 who will see their wages nudged up some as the minimum-wage floor rises. Two thirds of these workers are older than 25. Almost 4 out of 5 have no college degree. Three out of 4 live in households with less than $60,000 in annual income. Do we want to enable them to earn their way up the income ladder? Of course. An increase in the minimum wage provides one of the first rungs of that ladder.

I got a comment after I editorialized about the minimum wage last January. This reader wrote, “How about a Social Security raise?” Right now Social Security does not provide enough income to live on. He and his spouse are pushed to the limit. So why work on minimum wage?

I agree: The federal government should increase Social Security benefits. But here is the thing, my friend, Chuck: The increase in the minimum wage will result in additional contributions to Social Security through the FICA tax of $200 million a year from workers in Washington state (and another $50 million will go into Medicare).

So if a politician asks you how to pay for an increase in Social Security, just point to increasing the minimum wage. We are all linked together. It makes a lot more sense to strive for the high road than to push workers down, and pull ourselves down with them, into poverty. The voters in Washington understood that in passing the minimum wage increase.

Original: Everett Herald »

Posted in Minimum Wage

Comments

  1. Ed Isenson says:

    Very constructive column. It is amazing to me that some (maybe gobs) of economists still use models that assert that raising the minimum wage would reduce employment. That is simply not reality. It is time for those folks to chuck their Hayek and Friedman influenced textbooks.

    Keep up the great work.

    Ed Isenson

  2. Winslow P. Kelpfroth says:

    Several years ago I had a business trip to Keene, NH. At the time, NH had the highest employment in the country and Keene the highest in NH. I stopped to get some groceries and found the manager outside at the door trying to recruit employees. I got my groceries, put them on the belt, and this young man went about scanning my items. When he got to a five pound bag of potatoes, he stopped, staring at the potatoes for what an uncomfortable period of time, then asked “Do you want these in a bag?” That’s what it’s like in an economy so hot that even the unemployable have jobs. Unfortunately, no economy stays that way forever.
    The analysis in your article is unassailable in a fast moving economy, but in my long life these current conditions don’t last. In a few years a $15 minimum can be a barrier to initial employment. There may have been a time when a minimum wage was the right response to inequality, and it may be the right response now but it needs to be made flexible to accommodate the time when Boeing’s order book is very thin.

  3. governology says:

    Answering the question “who has minimum wage jobs” is very different from answering the question “who benefits from a higher minimum wage”. The real answer is that very few people benefit. It might have a negligible benefit at first, but after a few years, it does indeed raise the unemployment rate of young people and poor people.

    This article uses bad logic like asserting that because there was job growth in one place from one year to the next after a minimum wage hike, that means the minimum wage doesn’t reduce employment. This is a huge logical error. First of all, you need to compare the previous year’s job growth to the next year’s job growth if this is the data you’re using. And better yet, compare two similar counties where one did increase the minimum wage and the other didn’t. This simply isn’t very scientific.

    And it goes into fallacies like that businesses do better when minimum wage forces them to hire more skilled workers. So.. is minimum wage really good for the poorest workers if minimum wage is forcing businesses to hire more skilled workers over those less skilled one? This contradiction shows a huge lack of critical thinking on this issue on the part of the writers here. If businesses would do better with more skilled workers, they don’t need the government to force them to do it.

  4. Jon Rock says:

    The principal damage of the legislated minimum wage is that negotiability and freedom to contract which is outlawed between the zero-dollar bound to the implemented price floor, not by the mere 16% delta to the newest threshold. Ultimately, a nominal minimum wage law achieves nothing in the way of a guaranteed effective minimum wage, in terms of the goods and services which will be available for purchase at that wage. Indeed, the consequence of such a nominal law, proving principally auspicious both in the sphere of political influence and to labor unions and special interest groups focused on insulating themselves from competition, is to displace the laborer from the workforce to the welfare dole, thereby systematically shrinking the size of the overall pie of production while entrancing the voter to aggrandize the regressive despotism, albeit democratically.

    Should the EOI desire the contributions of a shrewd economist, I am available.
    Regards,

    Jon Rock

Leave a Reply

Search the blog

Subscribe to the blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Like what you’re reading?
Reader support helps preserve our independent voice for the middle class - please chip in to help out!