By Tanvi Jaluka
Source: Joe Raedle/Getty Images
Florida’s approval of a $15 minimum wage last month is fueling the debate again on the low wage labor market. The ballot’s success is noteworthy in Florida—a red state in which Trump secured more than half of its votes. While this may seem counterintuitive, findings from Brookings suggest that the majority of Americans—Democrats and Republicans alike—support raising the minimum wage. Despite this growing support, the COVID-19 pandemic has highlighted both the struggles of low-wage workers and the deepening financial strain on businesses and the economy. As the unemployment rate reaches unprecedented levels, the wages of existing jobs are even more paramount. Opponents of raising the minimum wage suggest that higher wages may place undue strain on struggling businesses and contribute to more unemployment. Proponents argue that economic shocks like the pandemic are exactly why a national minimum wage hike is essential.
It’s likely that there is some truth to both these arguments, but research on this issue has had a difficult time distinguishing who benefits or loses from a wage hike. Do minimum-wage workers end up losing their jobs? Do higher-paid workers suffer? What happens to businesses? Research from Seattle finds that a minimum wage hike improved wages for higher-paid workers and did not result in significant job losses.
In Seattle, the minimum wage was phased in over the course of four years (2014-2018), similar to the ballot provisions in Florida. Unlike most other state-mandated minimum wage hikes, Seattle’s policy determined the minimum wage rate based on the employer’s size and employees’ benefits. This meant that smaller businesses had a lower minimum wage requirement than larger businesses.
Researchers compared the employment outcomes of workers in Seattle to workers in other counties within Washington State. By 2018, the highest minimum wage in the city was $15.45. The minimum wage in the rest of the state was stable at $9.47 throughout this four-year period.
They found that by 2016, workers in Seattle were making about $2 more hourly than their counterparts outside of the city. But these gains were not equally distributed to all workers. Less experienced workers (people who have less years of work experience) earned, on average, $0.80 less than more experienced workers. Less experienced workers were also more likely to respond to the minimum wage hike by lowering the number of hours they worked. As such, these workers’ net earnings were no different than workers of the same skill level outside of Seattle. The researchers conclude that the effect of the policy was a net increase in earnings for nearly half of Seattle’s workers, while the less experienced half essentially “broke even.” It’s even more likely that the cutback in hours was voluntary as less experienced workers tended to work more than 40 hours/week.
Source: Tanvi Jaluka with data from Jardim et. Al (2018)
Businesses also saw no significant changes in employment. In fact, the city saw an 8% decrease in job turnover rates.
What do these results suggest for the rest of the country? Probably that a minimum wage hike will not be a drastic shock to the economy. It’s more likely that we will see modest improvements in wage earnings for more experienced workers and that less experienced workers will have more time to allocate for other activities, such as education and care work. Overall, a higher minimum wage should be part of our strategy to improve the economic prospects of low-income and middle-class families alike during this pandemic.
Tanvi Jaluka is a researcher on international development and gender issues. Her experience lies in the fields of women’s economic empowerment, digital financial inclusion, and gender-based violence. She is currently in the final year of her MPP.