Unintended Consequences: Why $15 an Hour in California and Seattle Reduces Employment for Low-Wage Workers

By Bob Shanahan

“The minimum wage law very clearly is misnamed. The real minimum wage is zero. That is what many inexperienced and low skilled people receive as a result of legislation that makes it illegal to pay them what they are currently worth to an employer,” wrote Thomas Sowell, noted economist, social theorist, and Senior Fellow at Stanford’s Hoover Institution, in Basic Economics: A Citizen’s Guide to the Economy.

 

The minimum wage was never meant to be an income to live off of and support a family with. It was meant to be an entry point into the workforce for low skilled workers or people getting their first jobs. The left continues to clamor for $15 an hour as the minimum wage, ignoring the simple economics that make this push absurd on its face. But this economic trend is only accelerating in cities and states, especially on the West Coast.

 

 

The city of Seattle became the first big city to institute a $15 minimum wage which started in 2015 for the largest employers (500+ U.S. employees), who were mandated by the new law to pay any employee, regardless of their skill or experience, $15 an hour. Smaller companies (500 or less) must start paying $15 starting January 2019.

 

While Seattle’s city leaders had noble intentions, wanting to put more money into the pockets of hardworking low-wage workers, its reckless policy will have a catastrophic effect on the very people it was intended to help. And early data shows that job losses and reduced hours are mounting. The implementation of this high minimum wage will result in the loss of employment and accelerate automation in a number of industries, especially retail, services, and hospitality/accommodation. Many business owners already operate with razor thin profit margins and Seattle’s minimum wage has made it illegal for employers to pay employees what they are actually worth to their business.

 

 

Seattle is the most aggressive minimum wage policy the country has seen so far. The socialists running Seattle ignore basic economics and believe the added income low-wage workers will have following the higher minimum wage will offset any added employment costs to businesses and there will be a minimal, if any, decrease in employment.

 

Here are two studies that tell two different stories of the early effects of Seattle’s minimum wage experiment.

 

To no one’s surprise, the uber-liberal University of California Berkeley released a study in June 2017 evaluating the effects of the increased minimum wage in Seattle from 2009 and 2016. Examining the restaurant industry specifically, the Berkeley study found that for every 10 percent increase in Seattle’s minimum wage, restaurant industry wages for low-wage employees increased only 1 percent. Fast food workers enjoyed the highest wage increases with a 16.7 percent increase over the seven year time period while full-service restaurants jumped only 4.2 percent. The study found no decrease in employment following the increased minimum wage and declared the $15 measure a resounding success so far. Nevertheless, it bears repeating that wages in the restaurant industry rose only 1 percent while the Seattle minimum wage jumped by 10 percent.

 

Something doesn’t add up in the Berkeley study.

 

A much more damning study was conducted by a school much closer to ground zero at the University of Washington. Released July 2016, it took a broader look at the real impact on the minimum wage increase, relying on unemployment insurance data from the Washington Employment Security Department. While the study found that wages did increase by $1.18 per hour for low-wage workers, the chances these low-wage workers decreased by 1.1 percent. Furthermore, the average number of hours each employee worked fell by 7.5 to 9.9 hours in 2015. While the study excluded approximately 40 percent of businesses, it still covered a more complete section of the economy than the Berkeley study, which only looked at restaurants. The UW study proves how making labor more expensive will have a negative impact on those workers the government is trying to help. In retail and restaurants especially, business owners will be forced to reduce hours, lay off employees, and move to more automation in order to survive. The number of hours worked by low-wage workers fell by 3.5 million hours per quarter once the minimum wage increased to $13 an hour, according to UW researchers.

 

Despite the troubling results from Seattle, other cities are following its lead. Los Angeles, for example, is poised to raise its minimum wage to $15 an hour by 2020. Flagstaff, Arizona is set to reach $15 by 2021.

 

Spiking the minimum wage in individual cities is one thing. At this local a level, its effects can be contained and cities can experiment with this policy if they think it best suits its population.

 

However, California is moving full speed ahead to become the first state in the nation to have a statewide minimum wage of $15 an hour. In 2016, Gov. Brown signed into law a $15 an hour minimum wage in California. A state as diverse as California cannot have a minimum wage this high without significant drops in employment, as I will outline below.

 

 

A December 2017-released report from The Employment Policies Institute (EPI) laid out the many consequences of raising the minimum wage to $15 across the most populous state in the country. The EPI is a fiscally conservative non-profit think tank that conducts research on employment issues. First established in 1991, it has become the go-to research organization for studies on issues related to entry-level employment.

 

The EPI compiled significant evidence to support why a 10 percent increase in the minimum wage would cause a 5 percent drop in employment in industries where half of employees earn close to the current minimum. By 2022, when the wage will jump to $15 an hour in the Golden State, approximately 400,000 jobs could be lost, around 4.1 percent of total employment in EPI’s sample. And that is a conservative estimate by the EPI.

 

More than half of the projected jobs lost will be in three industries: accommodation, food services, and retail trade. The federal minimum wage will be $7.25 per hour in 2022. If current laws remain in effect, this will be the largest gap between a state and federal minimum wage law in U.S. history. Anywhere from 9.5 to 10.7 percent of jobs are estimated to be eliminated by 2022 or later in the industries with the most low-wage workers, including agriculture, forestry and fishing, accommodation, and food services. The predicted job loss will be the greatest in accommodation and food services (-123,000) and retail trade (-77,000), accounting for about half of the jobs lost in its forecast of sampled industries and counties.

 

 

Between January 2017 and January 2023, California state law has a lower minimum wage for smaller companies (25 employees or less) than the $15 per hour for larger employers starting in 2022. But these small businesses will have to fork over $15 for every employee by the start of 2023. Below is a table outlining the minimum wage increases from 2017 to 2023.

 

Schedule for the new state minimum wage increase in California
Date Minimum Wage for Employers with 25 Employees or Less Minimum Wage for Employers with 26 Employees or More
January 1, 2017 $10.00/hour $10.50/hour
January 1, 2018 $10.50/hour $11.00/hour
January 1, 2019 $11.00/hour $12.00/hour
January 1, 2020 $12.00/hour $13.00/hour
January 1, 2021 $13.00/hour $14.00/hour
January 1, 2022 $14.00/hour $15.00/hour
January 1, 2023 $15.00/hour

Democrats will ignore these disastrous consequences stemming from a $15 minimum wage. They would rather signal their virtue instead of actually implementing policies that will help people struggling to make ends meet. They claim to care about equal pay for equal work, making a living wage, and helping the poor. But making entry-level, low-wage work this much more expensive over such a short period of time in California will result in higher unemployment from the very people they are trying to help!

 

Another telling example comes from our Canadian neighbors to the north, in Calgary, where the minimum wage is scheduled to be $15 by October 2018. Before even getting to the full increase, the service sector has reportedly lost 25,700 jobs over the last year, according to the city’s labour market review for July.

 

 

If you’re making minimum wage or close to it, here’s my advice. Work hard. Show up early. Be responsible. Take initiative. Be accountable. Never settle. Get educated. Go back to school. Go to a trade or vocational school. Find something you are passionate about or that gives you purpose. You cannot teach work ethic. Don’t be lazy. Don’t do the bare minimum. Don’t say you will do something. Do it. Lead by example. Be determined. Be strong. Be the best worker you can be and use everything at your disposal to build a better life for yourself. Living on a minimum wage is simply a starting point. Demand more money. If a job does not pay enough for you, find another job that does! There are plenty out there.

 

Pushing for $15 an hour will destroy many people’s lives by eliminating the job altogether. We are already seeing significant job losses in cities that have made the shift to $15. Making labor this much more expensive will only accelerate automation in a number of industries, especially retail and restaurants. And areas that rely on low cost manufacturing labor will move their factories elsewhere. We need to focus less on raising the wage floor and put more time and energy into retraining our workforce for the jobs that are available and remain unfilled due to lack of qualified labor.

 

California should’ve learned from Seattle and stayed away from $15 an hour. Too late now. Stay tuned for a spike in low-wage unemployment by 2022!

 

Follow me @BobShanahanMan

 

Bob is a freelance journalist and researcher. He remains forever skeptical of the mainstream media narrative and dedicated to uncovering the truth. Bob writes about politics (in DC and CA), economics, cultural trends, public policy, media, history, real estate, Trump Derangement Syndrome, and geopolitics. Bob grew up in Northern California, went to college in Southern California, and lived 4+ years in Seattle. He now lives in sunny Sacramento. His writing also appears in Citizen Truth and has been posted on ZeroHedge and Signs of the Times.

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