Minimum wage increase hurt Seattle's low-wage workers, study says

A new report on Seattle's groundbreaking minimum wage law has bad news for some low-wage workers. Even though hourly wages are up, low-wage workers' earnings overall were flat in Seattle during an economic boom.

Mark Long, an economics professor at the University of Washington and one of the study's co-authors, said that's likely happening because employers now offer fewer hours. So, on balance, the hike over the last couple of years seems to have hurt low-wage workers more than it's helped them.

One Seattle employer who has adjusted hours for employees is Dave Meinert, owner of the 5-Point Cafe in Belltown. He said he mostly supports the city's minimum wage increase, but since the wage hike went into effect, he's reduced hours for some employees.

"It's not that we're cutting anyone's hours necessarily,” Meinert said, “but we're adding fewer hours on new shifts when we need to hire someone new."

The study, which was commissioned by the Seattle City Council, analyzed quarterly hours and earnings data from the Washington Employment Security Department, which administers unemployment insurance. The City Council backed the wage increase.

Seattle's minimum wage for larger employers rose to $11 on April 1, 2015, and to $13 on Jan. 1, 2016. The study used data through the third quarter of 2016.

Key findings include:

• After Seattle's minimum wage rose to $13, hourly wages in low-wage jobs increased around 3 percent.
• Hours worked in low-wage jobs fell around 9 percent.

Not everyone in Seattle thinks the minimum wage is to blame for the hours cut. Tim Burgess, like everyone else on the Seattle City Council, is a minimum wage supporter. He's seen the new University of Washington study and another put out last week by the University of California Berkeley’s Institute for Research on Labor and Employment.

“At least in what we’ve seen so far from either of these studies,” Burgess said, “I don’t think you can say that any negatives are the result of the minimum wage increase.“

The UW study does offer some caveats. It notes that Washington state's minimum wage had been the highest in the nation and Seattle took that to a higher level. The authors said the more modest changes from lower initial levels might not produce the same effect.

The study also said some workers might now be paid as contractors or under the table and not be reflected in the state data.

Nevertheless, the wage hike has made a big difference in some people's lives. Tyler Scheffler, 26, is a student at Seattle Central College who works 40 hours a week at a Walgreens in Ballard.

“It's helped me save more money and afford more things, and it's going to help me to go school in the fall,” Sheffler said. Thanks to the wage hike, Sheffler plans to attend Washington State University in the fall feeling like he can afford it.

But not all low-wage workers are seeing that same benefit according to the new study.

UW researchers found that when wages at first bumped up to just $11 an hour, not much changed. Things took a turn for the worse for worker hours when Seattle increased its minimum wage to $13.

“The reduction in hours worked by low-wage employees was sufficiently great that it offset the increase in their hourly wages," Long said.

Some employers, like Meinert, cut total hours. Long said other places may have gone out of business, or moved outside Seattle, or in some cases replaced workers with machines.

All of this contrasts with other cities in Washington state that are most similar to Seattle in terms of economic growth. In those places, total earnings actually went up for low-wage workers by about 6 percent.

But in Seattle, low-wage worker earnings were flat. And that was during an economic boom time, when you would expect earnings to go up.

That’s exactly what happened for around the top 90 percent of earners in Seattle. Those workers saw a big jump in earnings — by about $2 billion — since the wage hike went into effect in 2015.

The irony is that the growing gap between rich and poor is what the minimum wage was supposed to address. Inequality is a top issue in the Seattle mayor’s race this year.

“In too many ways, and for too many people, our incredible successes are also creating two Seattles,” as former U.S. attorney and Seattle mayoral candidate, Jenny Durkan, put it.

On top of all of that, there is more bad news in the UW study: a drop of 9 to 13 percent in low-wage jobs in the restaurant industry after the minimum wage jumped to $13 an hour.

That finding may appear to contradict a study that came out last week on the minimum wage by economists at U.C. Berkeley.

Long said both studies agree that wages are up, and that there was no overall decrease in employment. However, Long said, the UW study looked at a different set of data and was therefore able to zero in on low-wage jobs in particular, which is where they say the drop came.

Down the line, there's the question of how these studies affect the national debate over the minimum wage. Then there’s also the impact of future wage hikes in Seattle itself.

“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,” the new UW study says.

Whether city leaders accept or reject this new report on the minimum wage, they continue try to find new ways to address rising economic inequality. There are multiple proposals to create more affordable housing. And there's a proposed city income tax for high earners (which all of the leading mayoral candidates support).

The income tax is going to be easier said than done, however. There are no state or local income taxes under current Washington State law. But backers hope, in time, they can get a favorable ruling to allow a city income tax from the state Supreme Court.