The $13 an Hour Minimum Wage Experiment in Seattle Led to Massive Job Loss
A new study done by the National Bureau of Economic Research shows that the minimum wage hike in Seattle (up to $13 per hour) has actually reduced overall hours worked and jobs.
From the study:
Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs.
By raising the minimum wage to $13 per hour, many of Seattle’s low-skilled workers lose their jobs or get less hours.
Now remember, this is actually using the data gathered from hiking the minimum wage to just $13/hour, but Seattle has approved a hike up to $15/hour.
One can only sit back and wait for a true economic disaster to kick in once the minimum wage hike hits its intended target.
Obviously this is opposite of what the legislators want, but unfortunately basic economics eludes them in their ivory towers of supreme knowledge.
But what about the intended effects? Don’t the people that are working more now make more money?
Well, as the study points out, actually no. From the conclusion:
Importantly, the lost income associated with the hours reductions exceeds the gain associated with the net wage increase of 3.1%. Using data in Table 3, we compute that the average low-wage employee was paid $1,897 per month. The reduction in hours would cost the average employee $179 per month, while the wage increase would recoup only $54 of this loss, leaving a net loss of $125 per month (6.6%), which is sizable for a low-wage worker
So, we have a minimum wage hike that causes the low-skilled workers (that the hike is intended to benefit) to lose their jobs en masse, while the people who get to keep their jobs actually make less money than they otherwise would have.
A similar study done by Harvard showed concurring evidence about the minimum wage, specifically, that a minimum wage hike is regressive.
It hurts the poor.
Raising the Minimum Wage Hurts the Poor
Minimum wage hikes hurt job opportunities for the poor and cause fewer hours to be worked. It also hurts small businesses, that make up the backbone of any Western economy, by making businesses with slim profit margins more likely to fold.
What these studies show, time and time again, is that leftist policies specifically hurt the poor and entrepreneurs. It’s policies like this that are causing Illinois to go bankrupt.
Now the study at hand actually did discuss some limitations to generalizing the data, but one aspect was particularly interesting. The authors write:
In addition, some employers may have shifted jobs out of Seattle but kept them within the metropolitan area, in which case the job losses in Seattle overstate losses in the local labor market. Reductions in payroll attributable to the minimum wage may exceed reductions in income for the affected workers, to the extent they were able to take advantage of relocated opportunities in the metropolitan area.
But this is all part of the issue: you don’t want the jobs leaving the city.
Ben Shapiro, founder of the Daily Wire, outlines the pattern of government involvement in local economies that hollows out major metropolitan areas until they all end up looking like Detroit.
Check it out below, it’s right at the beginning of the video:
This pattern has happened repeatedly in cities that have raised the minimum wage. What incentive is there for businesses to stay if they can get more bang for the buck one town or city away? It’s terrible policies like this that turned Detroit from an economic powerhouse to a city that resembles a third world country.
It is also partly contributing to the economic downfall of California and is a contributing factor to why so many people are leaving both the Sunshine State and Illinois—two Democratic strongholds.
The study concludes by commenting on another paper that showed that most minimum wage increases quickly erode in real terms:
Finally, the long-run effects of Seattle’s minimum wage increases may be substantially greater, particularly since subsequent changes beyond a final increase to $15 per hour will be indexed to inflation, unlike most of the minimum wage increases that have been studied in the literature, which have quickly eroded in real terms.
This parallels the real wage losses discussed in our article on how the American middle class is shrinking.
Low-skilled jobs are entry level positions. No one is intended to stay there for life. Jobs of this nature are meant for teenagers to learn important job skills that they can build upon for the rest of their career.
By reducing the number of entry-level jobs, you take away opportunities for young people to get valuable experience.
This is one of the many reasons why millennials are worse off than their parents were at their age.