Of course, you could completely eliminate the minimum wage with a 4%/yr. We associate the minimum wage ordinance with an 8% reduction in job turnover rates as well as a significant reduction in the … It provides the customer with a really good experience. But when we looked at employment, we actually saw a reduction. A lot of teenagers in restaurants have families to feed, if that is the criterion, especially cash jobs to feed kids in other countries. There is ultimately always a negative consequence to abusing your workforce. It’s challenging to run a business that generates a profit consistently. But surely that is an almost inevitable (benign and largely mathematical) result of increasing wages for the lower paid? In other words, people who do join the workforce near the bottom of the wage distribution all get a bit more than they would have before, and so some cross the threshold out of our “low” paid categorisation. I understand, you've got to do the best you can, one could argue. With the idea being that if you look through the supply chain of food, from farms to grocery stores to restaurants, all of those sectors of the economy happen to be places where there's a large amount of low-wage labor. The papers mention that Washington is one of four states that collect both earnings and hours worked, which is the detail that made these papers such a unique contribution to the literature. And that ballot initiative was successful. So, as of early 2014, the small city of Sea-Tac, Washington, adopted the first $15 minimum wage in the nation. In the latest EconTalk, both host Russ Roberts and economist interviewee Jacob Vigdor do a great job of discussing Vigdor’s and his colleagues’ 2016 study of Seattle’s large increase in the minimum wage. It is the less experienced workers--the people who had a less of a wage history at the time minimum wage went up--that they are seeing hours reductions that exceed the average. More of them cross the cut-off out of our definition of the “lower paid” category, leaving fewer jobs in that “low paid” category. You've got all sorts of employees in the health care sector that are low paid. The answer is yes. And in the Mayor's budget we saw that there was a line item for this study for $100,000. Suppose these funds funded a global network of not-for-profits. I know there was a Berkeley study in 2016, or at least a working paper. Russ Roberts: And so, it will be interesting to revisit some of these numbers in 2-3 years, to the extent that we can. Today teen jobs do not pay enough to buy transportation. So, if you are starting out at 20 hours a week, you are still getting at least 19, and, you know, maybe averaging a little bit more than 19 hours a week. If you’re uncertain about that assertion, go have lunch at a Jack In The Box. Vigdor noted in the podcast that busboys, for example, become more valuable very quickly and can then command higher wages. counties with lowest median household income). (1) A challenge of the analysis is that an obvious market response is to increase the proportion of under-the-table cash jobs (as Jacob mentioned). For the large employers in Seattle, the current minimum wage is $16 an hour. Russ Roberts: Now, a number of people have studied Seattle and found no impact. Great discussion. Anyway, I think that the Berkeley study of the restaurant industry–it’s reliable as a study of the restaurant industry, because they are finding the same result that we found when we did our analysis of restaurants in Seattle. His story was, 'Minimum wage increases force businesses to think up new ways to economize on labor. Suppose you design a global wealth tax such that if the wealthy DO NOT pay with a bank loan, the wealth tax is (say) 3.7%/yr. There are just as many jobs in Seattle restaurants as we would have expected without the minimum wage increase. And I have always argued that--you know, the minimum wage speeds up the substitution of capital for labor. . Yeah. Which would be important? And, generally speaking, a family at these income levels won’t be paying income taxes. And, it's only ex-post, after you see the parts of Washington State that sort of lit up in this process, that you can then kind of infer a story about, 'Okay, what makes these regions the better match compared to, say, what's right across the city limit?'. When we looked more specifically at the trajectories of individual workers with differing levels of experience, we found that the more experienced workers were coming out ahead. And so, I joined a group here at the U. of Washington that was putting a bid together for that contract. In particular, there's been a focus on the fast food industry and, because I follow people--probably a mistake, but I do--who care about this and who are constantly ranting about it--there have been both triumphant claims that, 'Uhp, see! Even the places with a low minimum wage. After the committee reached an agreement on a recommendation, it was proposed as a plan by the Mayor, and then passed as legislation by the Seattle City Council. The “elite” $6/hr. How do you like it?'. We were trying to commit ourselves to writing down a specification before we conducted the analysis. Russ Roberts: So, let's think about some meta-questions for a minute. What's that been like? And it is a big labor-saver. And some didn't. Maybe because, as customers leave, there’s a decline in demand for whatever they produce, but no, a decline in demand for the good you produce is not good for your business; the fact that you can (have to) pay your workers less (if you stay in business at all) doesn’t make it good for your business. Russ Roberts: So, this could be an example like--just to make it concrete--employment could have been growing in Seattle while it was shrinking in the suburbs. Jacob Vigdor is Professor of Public Policy and Governance at the Evans School of Public Affairs at the University of Washington, and a Research Associate at the National Bureau of Economic Research. Speeds up the substitution of robots and artificial intelligence and other forms of economizing at the expense of labor. And I think a UBI is a more rational way to set an effective price floor on labor. Whereas most studies that have gone before this have not really had access to information on how much people earn per hour, on sort of a systematic basis, throughout the economy. Millions of them. And I don't think that is a good thing. He wanted to meet, and he wanted to just kind of bend my ear and get my perspective about–what perspective we were taking. and BARELY scraping by. So, if you were a busboy in 2014--let's say, in February of 2014, so that minimum wage doesn't start going up until April--then you had at least some experience when the minimum wage starts going up. Russ Roberts: And some of those consumers, of course, are low-wage, poor folks who are going to pay more for something that's really important. Those stories run now and then, and again, on Twitter. Jacob Vigdor: Yes. And we just sort of penciled out how much that would cost to get all that work done. What kind of effect is that on workers? People were getting the details of our analysis exactly wrong. Every year Seattle's Minimum Wage increases on January 1. Jacob Vigdor: That's right. And I raised a similar question--I thought you were going to raise a moral question: whether it's moral to use the app. And, so, that eliminates that job from your kitchen. Jacob Vigdor: It is not the U. of Washington. Russ Roberts: And, so tell us what you found. It's hard to know, for sure. So, I was concerned that this would end up being passed along to consumers. So, I think I stand on firm ground when I say the Vigdor study is deficient, and the Berkeley study too. Russ Roberts: Just to make it clear: You're not saying that every single restaurant went from table service to take-out at the counter. And he responded to me by saying, ‘Well, in the long run, aren’t these jobs going to go away anyway?’ And so, this is coming from someone whose job description is to be a minimum wage advocate. Was there an effect upon local prices? An unemployed Starbucks worker could go online, describe how he’s going to brew and deliver coffee to the disabled in his neighborhood, come up with a name for his not-for-profit, and the giant not-for-profit would pay him $20/hour to do that. Yeah. According to Vigdor et al’s 2nd paper, these wage increases seem to have been enjoyed across the distribution of low wage earners, not just a blunt increase of those who start below the minimum wage to bring them up to that wage. And also those are sectors of the economy where the profit margins are pretty low. So, there's a lot of people that have the income to be able to afford going out to eat at a full service restaurant. Just making the general point that there are alternatives to the min wage. Of course other not-for-profits would have to be funded to monitor these micro-not-for-profits to ensure they guys weren’t just sluffing-off. Russ Roberts: So, when you say that hours were down 6 or 7%, can you give us an idea what that means exactly? Namely that, overall restaurant employment shows no negative impact. we have to award.’ There was no such information in Seattle’s RFP [Request for Proposal]. Another observation I would offer, and an observation I would criticize economics education over, is that one can quickly think of almost countless productive and valuable activities an individual can engage in that require no capital and (to be honest) “low skills.”. What do you see? We actually do have the capacity to estimate effects on the number of hours worked in the restaurant industry. Jacob Vigdor: Yes. We've experimented with different thresholds ranging anywhere down from, you know, $15 an hour all the way up to $25. Because of the risk involved. Russ Roberts: But you are probably not a low-wage worker in that situation. If it’s legal to pay near-zero, you can make a profit rousting up homeless people to be human furniture during South Hampton party events. Our data limitations exactly wrong. And particularly amongst teenage workers, many of whom are just looking for a little bit of summer employment or just a few hours. And am better for it. Actually, there's a really interesting study. What was wrong with the, say, suburban areas outside Seattle where the legislation wasn't in place? Concerns that the impact of such a sharp minimum wage increase hurts lower income workers are legitimate even as the impact of the final increase have yet to be determined. I had been reading about the Seattle minimum wage in the news, and one of my first days on campus I had lunch with one of my new colleagues, Mark Long here in the Evans School, and I asked him if anybody was doing anything about studying this minimum wage initiative. Critics said it would kill jobs and stifle the economy, while proponents argued it would help low-wage workers. You can go into more detail here: https://en.wikipedia.org/wiki/Synthetic_control_method. [Recording date: February 19, 2019.]. This was just the data talking. And so the consequence--you know, if you think about it: If you are trying to get a job in part so you have some experience to put on your resume so that it's easier for you to get more work down the road--um, you know, your reservation wage--if you have all of your sort of life covered by your parents or by your family, your reservation wage is going to be really low. If any of them dropped below $50MM or $30MM, they would stop getting taxed. And so, if you are just counting up the number of jobs, it might look like it hasn’t changed very much. Do we want to have a “servant” class that serves the really high paid? So, a reduction in hours is something that Berkeley’s study can’t [find]. But once you become a business owner then you stop reporting your earnings to the UI[?] And I'm looking for work; I don't have a lot of skills, and I'm trying to get a job as a dishwasher or a gardener--helping somebody with gardening or contracting. Scott – I’ll take that post as agreement that the minimum wage is probably not the best solution to labor market problems. The profit motive is sacred. So, just the month after the City Council passed the ordinance. Jacob Vigdor: It could be a story that they're telling. And, I think that one of the things that we learned in working on this study and a sort of humbling life lesson, is that ultimately you can't control what other people say. There exists no limit to obnoxious business models that are able to be dreamed-up if near-zero wage levels are permissible. And these include things like, instead of hiring a prep cook to chop vegetables for you, you just order chopped vegetables. But, with this paper, it's really kind of a 'what you see is what you get' endeavor. I think part-time work and contracting are MUCH bigger problems for workers than the minimum wage. But, being the sole bidder, what ended up happening is that the folks in City Hall just sort of called us up and said, 'Okay. I’m not an advocate. Since people can live in cardboard boxes, there’s no bottom to what the wages can fall to. So, what this means, is Seattle is a little bit different from the rest of the country. A minimum wage is price fixing, and one of the very VERY few things in economics that we know for sure is that pricing fixing is dumb and almost always does the exact opposite of the (stated) goal of the price fixing advocates. It's not a good thing. Jacob L. Vigdor Study Director With major intellectual contributions from UW Minimum Wage Study members, Evans School of Public Policy & Governance, School of Social Work, School of Public Health Seattle Minimum Wage Study: Spring 2019 update It is very strange to go to the US and have a lot of people around doing jobs like that – sometimes downright annoying with unnecessary service and servility. Now, there's an asterisk there, which is, we're talking about all jobs in the restaurant industry. Do you see them doing something else with fewer hours? After all, it’s much easier to offer your new bus boy cash, than to convert from a sit-down to “fast casual” restaurant. Russ Roberts: And, of course, there are a lot of people who made predictions about what would happen. The book ‘A Beautiful Mind’ about the mathematician John Nash is one of the all time great books. 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