Democrats, the media, and now even the Republican presidential nominee push a minimum-wage hike as a way to get more money to workers. Does that actually succeed? Seattle pushed its minimum wage up by $1.53 an hour to $11 last year, so workers should be rolling in extra dough by now, right? Er … wrong.
In fact, a new study reported by the Washington Post suggests workers actually lost money overall — and that the potential upside only amounted to pennies for those workers who didn’t end up on the unemployment line:
Things seem to be going pretty well since Seattle bumped the hourly minimum wage for large businesses up to $11 last year, from the statewide minimum of $9.47 an hour. Low-wage workers are getting more time on the job and making more money. Fewer businesses are closing, and more new ones are opening. The technology and construction sectors are booming. Even the weather cooperated for a change. The spring was unusually dry in Seattle, which was good for the city’s fishing fleet.
Yet the actual benefits to workers might have been minimal, according to a group of economists whom the city commissioned to study the minimum wage and who presented their initial findings last week.
The average hourly wage for workers affected by the increase jumped from $9.96 to $11.14, but wages likely would have increased some anyway due to Seattle’s overall economy. Meanwhile, although workers were earning more, fewer of them had a job than would have without an increase. Those who did work had fewer hours than they would have without the wage hike.
Accounting for these factors, the average increase in total earnings due to the minimum wage was small, the researchers concluded. Using their preferred method, they calculated that workers’ earnings increased by $5.54 a week on average because of the minimum wage. Using other methods, the researchers found that the minimum wage hike actually caused total weekly earnings to drop — by as much as $5.22 a week.
Let’s just focus on the upside for a moment. In a forty-hour week, an increase of $5.54 would amount to … fourteen cents an hour. That means that only 9% of the increase in minimum wage has effectively reached workers. Ninety-one percent has dissipated in the need for businesses to counter the increased costs, either through reductions in hours or lost jobs. And that’s the best-case scenario.
The economics of business and labor costs are really not that difficult to figure out. If businesses have to absorb an artificial and sudden increase in costs, either prices have to rise or other costs have to get cut. That would still be true if government forced businesses to index the minimum wage, as Democrats demand, although the failures would be more difficult to track. In the industries most directly impacted by minimum-wage hikes, cost competition is usually too great to allow for significant price increases, so businesses cut costs instead.
Here’s the main point of this sad story from Seattle. Minimum wage increases do not increase buying power — not in the long run, because prices reset to counter the increased costs and wipe out any theoretical gains for low-income workers. As this study shows, it doesn’t increase buying power in the short run either for workers that supposedly should benefit from the policy. Even the best-case scenario only produces a bump high enough to get an extra latté a week from Starbucks — until Starbucks has to raise its prices, or force longer wait times with smaller staffs, which is a cost of another kind.
The continual push for minimum-wage hikes flies in the face of all evidence, and of all results. If this policy were effective, we wouldn’t need to keep raising the level of pay; we would have solved poverty decades ago. It’s wishcasting at best, and it’s destructive political pandering at worst — and as we see in Seattle, usually it’s the worst.