You canít take the University of Washington study and deposit it in the bank, exactly, but advocates of big minimum wage increases should at least consider its warnings.
Last week, UW released a study based in Seattle that paints a dire picture about possible consequences of dramatic minimum-wage hikes. In 2014, Seattle voted in an increase to $15 an hour minimum, to be phased in over several years. The increases are based on size of business and a few other factors, but many businesses went to a $13 an hour minimum wage in January 2016.
The result? Higher wages but fewer hours for many of the low-wage earners.
In other words, smaller paychecks for many of the people deemed most in need of extra earnings. When the minimum wage went up from $11 to $13 an hour, the study concluded, wages rose about 3 percent but hours for those workers dropped about 9 percent. Thatís a net loss to the employee.
As with many studies that donít provide the answers some partisans are hoping for, the UW study was quickly criticized. It hasnít been peer reviewed yet, and some skeptics question the researchersí methodology. What critics and advocates might agree upon is that an economic study taking place in the midst of a veritable boom could be at least somewhat skewed. To attract or keep talent, itís typical for employers in hot economies to pay more for certain jobs and in essence replace some of the lower-paying positions in the process. Some of that might be in play in Seattle, leading observers to wonder, What happens in a more moderate or even a weak economy?
The nation is waiting to study longer-term results of significant minimum wage increases in cities and states. Less skilled employees earning higher wages will no doubt help improve the poverty rate, and common sense dictates that increased expendable income should translate into more money flowing into businesses and communities. On the other hand, those higher wages must come from somewhere. How might a tighter bottom line impact owners and stock holders? At what point does management increase prices to help fill the wage gap? How would that action affect the long-term prospects of the business?
And as the UW study hints, what happens if the people youíre trying hardest to help get hurt the most?