Commentary

Minimum Wage Shrinks Workers’ Wages – Just Look at Seattle

Hans Bader
By Hans Bader | June 27, 2017 | 11:17 AM EDT

(Flickr Photo/Labeled for Reuse)

A credible new study on Seattle’s $15 minimum wage has bad news for liberals, notes Max Ehrenfreud at The Washington Post’s Wonkblog. The City of Seattle is increasing its minimum wage to $15 over several years. The study finds that already, “some employers have not been able to afford the increased minimums. They've cut their payrolls, putting off new hiring, reducing hours or letting their workers go.”

Indeed, the “costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study,” which was “commissioned by the city” and conducted by economists at the University of Washington. Overall, the study estimates that “the average low-wage worker in the city lost $125 a month because of the hike in the minimum.” The study was made available “as a working paper Monday by the National Bureau of Economic Research.” 

Minimum wage increases also cost taxpayers money. California’s legislative analyst projected in 2016 that increasing the state’s minimum wage to $15 an hour would cost taxpayers $3.6 billion more a year in increased government worker pay. This is partly because government employees sometimes have their pay set as a multiple of the minimum wage, meaning they don’t have to be poor to benefit from a minimum wage increase.

Job losses due to minimum wage increases also shrink state and municipal tax revenue, contributing to budget deficits. The American Action Forum predicted the increase in California’s minimum wage to $15 would ultimately cost the state nearly 700,000 jobs. An economist at Moody’s calculated that up to 160,000 California manufacturing jobs will be lost. 

Meanwhile, low-income workers who manage to keep their jobs and avoid reduced hours despite the increased minimum wage will face increased taxes and reduced federal earned-income tax credits and food stamps. As Henry Schmid noted in The Wall Street Journal, “the tax implications of going from a $10- to a $15-an-hour minimum wage” would wipe out much of the benefit of any increase to the affected workers. “For a family of four with both spouses making the minimum wage, their federal tax will increase from $4,106 to $7,219, payroll tax will increase from $2,579 to $3,869, their earned-income tax credit (EITC) will be reduced from $596 to zero … and the $2,400 food-stamp credit will be lost.”

The study of the Seattle minimum wage is titled “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle,” and is available at this link.

Hans Bader practices law in Washington, D.C. After studying economics and history at the University of Virginia and law at Harvard, he practiced civil-rights, international-trade, and constitutional law.

DONATE

Sponsored Links