Flaws cast doubt on new study’s gloomy view of minimum wages
Poor methodology means almost half of Seattle’s low-income workers were left out of survey
A study released in June by the University of Washington on Seattle’s effort to raise the minimum wage to $15 an hour has received a lot of attention. So what does the new study tell us? Less than you might think.
That is the short version; the longer version follows.
Because of other obligations, I have only now got around to reading the study. In a nutshell, it said the increases hurt the low-paid workers who were supposed to benefit.
Although the University of Washington study grabbed all of the headlines, a study on Seattle’s labour market released a few days before quietly reached the opposite conclusion.
That study was carried out by the Institute for Research on Labour and Employment, which is based at the University of California-Berkeley.
One major caveat is that neither of the new reports has been peer reviewed; the data are not public. Once released, people who are much better than I am at statistical analysis will provide a better assessment of the methodology and data set.
PERHAPS MOST NOTEWORTHY IS THAT THIS STUDY IS AT ODDS WITH MOST OF THE RESEARCH ON MINIMUM WAGES.
As the Seattle Times observes, once that happens, we should expect "the findings will likely be modified and the headline-grabbing claims will likely be toned down".
As a reminder, I have my own set of biases. I have written that low pay has been gamed by corporate employers such as Wal-Mart and McDonald’s, whose employees have to rely on various forms of taxpayer assistance to survive.
I am, of course, against subsidising the labour costs of private industry. If the prices of greasy hamburgers and cheap Chinese imports go up if that subsidy is withdrawn, so be it. I will always take market capitalism over crony capitalism. Thus, my pro-minimum wage biases are revealed.
As for the University of Washington study, it found that "Seattle’s minimum wage increase reduced the total hours worked by Seattle’s low-wage workforce by about 9%" while raising "low-wage workers’ wages by only about 3%, implying that the costs of this wage hike outweighed its benefits for these workers".
The net loss to workers was an average of $125 a month.
Perhaps most noteworthy is that this study is at odds with most of the research on minimum wages. Modest, gradual increases have not been shown to reduce employment or hours in any significant way.
Whenever we encounter an outlier, we should pay close attention to what might be causing the unique findings.
As Michael Hiltzik observes in the Los Angeles Times, the study’s findings "are out of line with almost all other studies of the minimum wage employment effect". "That doesn’t make them suspect, exactly, but it does warrant a close examination of the methodology to see whether the researchers missed or misinterpreted something."
As Carl Sagan observed with the acronym Ecree, "extraordinary claims require extraordinary evidence".
So far, the evidence is going the other way. Not only are the data not public, so they have not yet been peer reviewed, but what we do know about the study’s methodology has been criticised for its failings.
The biggest is that it excludes businesses with more than one location. No McDonald’s or other fast food restaurant chains were included. Nor was Wal-Mart, or any of countless other retail and restaurant chains.
That is quite a significant oversight. Michael Reich of the Centre on Wage and Employment Dynamics at the University of California at Berkeley has analysed the effect of the methodology used. He notes that the report excludes "48% of Seattle’s low-paid workforce".
This is a major flaw. Removing all of the chain stores, he says, "raises a big red caution flag about the representativeness of their sample".
Thus, argues Reich, the interpretation reached by the study is questionable. He adds that the report failed to provide any evidence that "their sample is representative of all jobs in Seattle and Washington".
Similar criticism of the methodology has been levelled by others including Ben Spielberg of Teach For America and Ben Zipperer and John Schmitt of the Economic Policy Institute.
I also have a beef with the objectivity of the study’s lead researcher, Jacob Vigdor.
He has written critically about minimum wage laws in general, including this post from 2014: "The minimum wage is a lousy antipoverty programme." Thus, he may not be the most objective person for assessing the effect of Seattle’s minimum wage laws.
When the law was originally passed, opponents of minimum wage increases warned of devastating consequences that could include restaurant closings, layoffs and other significant problems.
The trouble was the evidence went the other way, and none of these forecasts of doom has come to pass.
With the predictions of disaster not having materialised, the new tract is a study with a questionable methodology that excludes almost half of Seattle’s minimum wage workers.
Good policy requires a robust debate between honest parties on all sides of any argument. Unfortunately, we have not got that from opponents of minimum wage increases.
That is too bad, as it performs a disservice to those who want to see carefully crafted policy put into effect.
© Bloomberg News 2017