American Enterprise Institute’s Analysis Of Minimum Wage Hikes In Seattle

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seat1 seat2 seat3Seattle’s city council made history in June 2014 by unanimously passing legislation that will eventually bring the city’s minimum wage up to $15 an hour, the highest in the nation. Washington State already had the distinction at that time of having the highest state minimum wage in the country at $9.32 an hour. The first increase to $10 an hour for some Seattle businesses and $11 for others took place on April 1, 2015. Additional increases to $12.00, $12.50 or $13 an hour took effect for most employers on January 1, 2016. Further increases will continue until the city’s minimum wage reaches the full $15 an hour, which will happen on the first of the year in either 2017, 2018 or 2019 for most employers and as late as January 2021 for some small businesses with fewer than 500 employees.Seattle mayor Ed Murray applauded the city council in 2014 and remarked then that, “Some have called what we have done a radical experiment. I disagree. The real radical experiment has been the economic policy of the last 34 years that has dismantled our middle class. Today we have taken bold action to begin to reverse that radical trend. Today we have taken action that will serve as a model for the rest of the nation to follow.”Now that the first Seattle minimum wage increase has been in effect for more than ten months, and as local employers brace for the additional minimum wage hikes that will eventually increase their annual labor costs per full-time minimum wage worker by 61% and by a whopping $11,300 (from the increase in hourly labor costs from $9.32 to $15 an hour), are there any noticeable effects so far on the city’s labor market? Is Seattle’s radical experiment with the highest-ever minimum wage in US history serving as a “model for the rest of the nation to follow”? Or is Seattle serving as an “economic canary in the coal mine” for other cities and states (and the country) considering the “bold action” of imposing higher labor costs on employers by as much as $15,500 annually per full-time minimum wage workers if they enact legislation increasing the minimum wage from $7.25 to $15 an hour?Early evidence from the Bureau of Labor Statistics (BLS) on Seattle’s monthly employment, the number of unemployed workers, and the city’s unemployment rate through December 2015 suggest that since last April when the first minimum wage hike took effect: a) the city’s employment has fallen by more than 11,000, b) the number of unemployed workers has risen by nearly 5,000, and c) the city’s jobless rate has increased by more than 1 percentage point (all based on BLS’s “not seasonally adjusted basis”). Those figures are based on employment data for the city of Seattle only(not the Seattle MSA or MD), and are available from the BLS website here (data are “not seasonally adjusted”). Those three negative employment effects are displayed in the three charts above and I’ll explain each in greater detail below.

  1. Employment Effect. The top chart above shows monthly employment in the city of Seattle from January 2007 to December 2015, on both a “not seasonally adjusted” basis from the BLS (dark blue line) and a “seasonally adjusted” basis using a standard seasonal adjustment process used by the Census Bureau and other government agencies (performed using the statistical software program EViews 8.0, see lighter blue line). Following the first minimum wage hike in 2015, there was a decline in the city of Seattle’s employment of 11,037 jobs between April and December as reported by the BLS (from 407,073 to 396,036) and by 8,114 jobs on a seasonally adjusted basis (from 404,202 to 386,089). By both measures of employment, that April to December 2015 drop in Seattle employment was the biggest decline over any 9 month period since between April and December 2009 period during the Great Recession when there were similar, but slightly larger job declines (see top chart above). And the loss of more than 10,000 Seattle jobs (on an unadjusted basis vs. a 9,950 job loss on a seasonally adjusted basis) in just the three months of September, October and November 2015 establishes a new record for the greatest number of Seattle jobs ever lost over a three month period going back to 1990 when the BLS first started reporting the city’s monthly employment levels. Notably, the three-month job losses last year in Seattle from September to November were greater that job losses in any three month period during the last three recessions (1990-1991, 2001 and 2007-2009).
  2. Unemployment Effect. The middle chart above shows that the number of the city’s unemployed workers increased between April and December last year by nearly 4,700 on an unadjusted basis (dark blue line), and by nearly 4,300 on a seasonally adjusted basis (light blue line). Like for the decline in the city’s employment level last year between April and December, the rise in the number of unemployed Seattle workers between April and December 2015 was the largest increase over any 9 month period since the May 2009 to January 2010 period at the end of the Great Recession.
  3. Unemployment Rate Effect. The bottom chart above displays the monthly jobless rate in the city of Seattle from January 2007 to December 2015, on both an unadjusted (dark blue line) and an adjusted basis (light blue line). Following the city’s minimum wage increase in April, the seasonally adjusted jobless rate increased by more than one percentage point (from 3.45% to 4.53%) to the highest level in more than two years going back to October 2010. The unadjusted unemployment rate increased by 1.2 percentage points from 3.0% to 4.2% between April and December last year.There hasn’t been as large an increase in Seattle’s jobless rate over a 9-month period since the end of the Great Recession between May 2009 and January 2010.

Bottom Line: Perhaps it’s too early to tell for sure, and perhaps there are other reasons that we observe such significantly negative effects on three of Seattle’s key labor market indicators last year. However, until the first minimum wage hike last April, all three of Seattle’s labor market indicators had been showing ongoing and strong signs of improvement for the previous five years: the city’s employment had been steadily increasing since early 2010, the number of unemployed workers in Seattle had significantly declined from a peak of more than 33,000 in 2009 to fewer than 13,000 by last April, and the city’s jobless rate had fallen steadily from a post-recession peak of nearly 9% to only 3% by last April (unadjusted). But then each of those key labor market variables for the city of Seattle reversed sharply starting last April when the city started suffering significant job losses, which then contributed to a noticeable spike in the number of the city’s unemployed workers and a sharp jump in the city’s jobless rate between April and December. And each of those three reversals in the nine months of last year were the worst examples of labor market deterioration for each of those variables since the Great Recession.

Maybe the city of Seattle will recover from the serious job market weaknesses that it has experienced since last April when its minimum wage law began imposing significantly higher labor costs on the city’s employers. Considering that Seattle had the largest three-month loss of jobs in city history between September and November last year following the first phase of wage hikes on the way to $15 an hour, it might be the case that the early evidence suggests that this is a “radical model for the rest of the nation to NOT follow.”

Update: The chart below shows that while the city of Seattle experienced a sharp drop in employment of more 11,000 jobs between April and December last year (light blue line, BLS data available here), employment in Seattle’s neighboring suburbs outside the city limits (Seattle MSA employment minus Seattle city employment) increased over that period by nearly 57,000 jobs and reached a new record high in November 2015 before falling slightly in December.

Bottom Line II: Additional evidence showing that while jobs in the city of Seattle were tanking starting last April, employment in the suburbs surrounding Seattle was increasing steadily to a new record high in November. That departure in employment trends: job declines inside the city limits of Seattle compared to increasing employment outside the city limits suggests the possibility that the difference in labor costs could have been a contributing factor.

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