The Register-Herald, Beckley, West Virginia

Web Extra

June 6, 2014

$15 minimum wage puts Seattle in uncharted waters

SEATTLE — Vying for the title of the United States' most progressive city, Seattle this week decided to raise its minimum wage to $15 an hour. Depending on which pundit is nattering away, this means Seattle is either going to fall off the map and become a "Mad Max"-style economic wasteland or transform into an egalitarian utopia that inspires sweeping pro-labor activism nationwide. Both sides claim to know, with impressive certainty, how Seattle's bold experiment will turn out.

But that's exactly what it is: a relatively unprecedented experiment whose effects on workers, businesses and the local economy are unknowable. Anyone who claims otherwise is either lying or misguided.

Despite literally hundreds of studies focusing on the minimum wage, top economists are still uncertain about the consequences of raising it. In a survey of several dozen elite academics last year, exactly zero said they had a strong sense of what happens to the lowest-skilled workers when you require companies to pay them more.

In the absence of a reliable forecast, here's a framework for thinking through both what's likely to happen as Seattle adopts the highest minimum wage in the nation and whether other cities should follow suit.

Those opposed to raising the minimum wage typically argue that if you increase the cost of something, people will buy less of it, whether we're talking about socks or labor. That's true to a point, but the magnitude of the effect really depends on how sensitive buyers are to changes in price.

For small changes to current costs, demand for labor looks pretty inelastic. In other words, studies have found, you're not likely to see mass layoffs if the minimum wage goes up a touch. Instead, a modest minimum-wage increase is likely to be a transfer from employers to employees that will not discernibly depress low-wage employment.

 That's a good thing, if you want to improve the lives of the working poor. It's why the proposal to gradually raise the federal minimum wage to $10.10 seems like a pretty safe idea.

At some point, though, if you raise the wage floor too much, you probably do more harm than good.

Even Thomas Piketty, a strong proponent of raising the minimum wage (whose work is cited somewhat inaccurately in Seattle's new ordinance) agrees. "Obviously, raising the minimum wage cannot continue indefinitely: as the minimum wage increases, the negative effects on the level of employment eventually win out," he writes in "Capital in the Twenty-First Century."

It's hard to know, based on the evidence we have, exactly when you reach that tipping point. My own guess is that by the time you get to $15 per hour, some more marginal low-skilled positions - grocery baggers, shopping-cart retrievers, busboys - will start disappearing.

To the extent that minimum-wage jobs are "tradable" - i.e., moveable across borders - some jobs will just be shifted to where labor is cheaper. But most very-low-wage jobs are probably not tradable; they tend to be concentrated in sectors such as retail, restaurants, hotels, cleaning crews and health care, all services that are hard to perform from afar.

One other possible consequence of a $15 minimum wage is that companies will invest in more automation. Think self-checkout machines instead of cashiers. Again, not all low-skilled work can be automated, at least not as quickly as firms will want to reduce headcounts. So some of the burden of a higher minimum wage might fall on consumers, through some combination of higher prices and worse service (longer waits at the coffee shop, say).

The good news for Seattle: It's a pretty rich area with low unemployment. It seems better equipped to absorb the shock from a $15 minimum wage than a lot of other places. Which is maybe why the city feels emboldened to try its "living wage" experiment, and why lots of other cities may not be able to follow in its path.

All that said, even if Seattle's plan does improve the pay of the working poor without reducing employment, raising the minimum wage is still not necessarily the best strategy for cities, states and the nation to combat poverty and inequality in the long run. Mandating higher pay, after all, is a band-aid for much deeper structural problems in the U.S. economy. It addresses the outcomes rather than causes of inequality, which begins in utero and widens throughout childhood and early adulthood. Raising the minimum wage may be the easiest policy to sell to voters, but expanding access to high-quality education (preschool all the way through higher ed), good nutrition and safe, affordable housing are probably more potent ways to improve the lot of the United States' most disadvantaged families.

 

1
Text Only
Web Extra
  • Darth Vader is polling higher than all potential 2016 presidential candidates

    On the other hand, with a net favorability of -8, Jar Jar is considerably more popular than the U.S. Congress, which currently enjoys a net favorability rating of -65.

    July 28, 2014

  • Russia's war on McDonald's takes aim at the Filet-o-Fish

    Russia said earlier this week that it had no intention of answering Western sanctions by making it harder for Western companies to conduct business in Russia. But all bets are off, apparently, when you threaten the Russian waistline.

    July 28, 2014

  • Screen Shot 2014-07-22 at 2.00.42 PM.png VIDEO: Train collides with semi truck carrying lighter fluid

    A truck driver from Washington is fortunate to be alive after driving his semi onto a set of tracks near Somerset, Ky., and being struck by a locomotive, which ignited his load of charcoal lighter fluid.

    July 23, 2014 1 Photo

  • Wal-Mart to cut prices more aggressively in back-to-school push

    Wal-Mart Stores plans to cut prices more aggressively during this year's back-to-school season and will add inventory to its online store as the chain battles retailers for student spending.

    July 22, 2014

  • Hospitals let patients schedule ER visits

    Three times within a week, 34-year-old Michael Granillo went to the emergency room at Northridge Hospital Medical Center in Los Angeles because of intense back pain. Each time, Granillo, who didn't have insurance, stayed for less than an hour before leaving without being seen by a doctor.

    July 22, 2014

  • Malaysians wonder 'Why us?' after second loss of airline jet

    It was all too familiar. Grieving families rushing to airport. The flashing television graphics of a plane's last radar appearance. The uncomfortable officials before a heavy thicket of microphones.
    For many Malaysians, the disappearance of Flight 370 in March has been a long trauma from which the nation has not yet recovered.

    July 22, 2014

  • Your chocolate addiction is only going to get more expensive

    For nearly two years, cocoa prices have been on the rise. Finally, that's affecting the price you pay for a bar of chocolate - and there's reason to believe it's only the beginning.

    July 18, 2014

  • Facebook tests button to let people shop from its website

    Members on desktop computers or mobile devices can click a "buy" button to make purchases through advertisements or other posts on the world's largest social network, the Menlo Park, California-based company said Thursday in a blog post.

    July 18, 2014

  • The terrible history of passenger planes getting shot out of the sky

    What is more clear is that, if initial reports are true, this would be the deadliest incident of a civilian passenger plane being shot down in modern memory. In some instances, the causes of the disaster are still shrouded in mystery. Here are some of the worst events.

    July 18, 2014

  • 130408_NT_BEA_good kids We're raising a generation of timid kids

    A week ago, a woman was charged with leaving her child in the car while she went into a store. Her 11-year-old child. This week, a woman was arrested for allowing her 9-year-old daughter to go to the park alone. Which raises just one question: America, what the heck is wrong with you?

    July 17, 2014 1 Photo