Seattle’s higher minimum wage has lowered earnings for low-wage workers

The Wynne government in Ontario recently followed Alberta’s lead, announcing a plan to move to a $15 minimum wage. British Columbia is also debating a $15 minimum wage, and the idea will no doubt continue to be hotly debated in Canada and the United States.

Given that the City of Seattle is one of the first jurisdictions in both countries to commit to a $15 minimum wage, its experience can help assess the likely outcomes of this policy.

New evidence published this morning shows that minimum wage hikes in Seattle thus far have led to worse outcomes for low-wage workers—fewer employment opportunities, reduced hours, and lower overall earnings. The study, authored by University of Washington researchers and funded by the City of Seattle, adds to a growing body of evidence that raising the minimum wage hurts vulnerable workers—the very people the policy is supposed to help.

The study specifically looked at the effects on low-wage workers (as defined by those earning under $19 per hour) of the first two phases of Seattle’s targeted minimum wage increase to $15 per hour. The first phase increased the minimum wage from $9.47 to $11 per hour in 2015. Then the rate was increased again to $13 per hour in 2016. Critically, the study doesn’t measure the complete economic effects of Seattle’s $15 minimum wage, which came into effect January 1, 2017, for large employers that do not provide medical benefits, since the data only covers the increases up to $13 per hour.

Here are the main findings of the study with regards to the employment effects:

•  The total number of low-wage jobs declined by 6.8 per cent—a drop of more than 5,000 jobs—after the minimum wage increased to $13 per hour.

•  For the low-wage jobs that remained, there was generally a reduction in the number of hours employers made available to low-wage workers. Specifically, during the three quarters when the $13 minimum wage was implemented, the number of hours that low-wage worker worked fell by a total of 9.4 per cent.

These results suggest that low-wage workers are hurt by having fewer job opportunities. Even low-wage workers that retain their position are hurt through fewer available hours of work. In Seattle’s case, the reduced hours meant that low-wage workers on average had lower earnings.

While the minimum wage increase from $11 to $13 directly raised average earnings for low-wage workers by $54 per month, reduced hours cost low-wage workers an average of $179 per month—with a net reduction of $125 per month for low-wage workers. That represents a 6.6 per cent average decline in earnings for low-wage workers.

What’s particularly concerning is that the reduction in earnings was more severe from $11 to $13 per hour (in 2016) than the initial increase from $9.47 to $11 per hour (in 2015). Such evidence suggests the continued increase to $15 per hour will have an increasingly negative impact on low-wage workers, as the rise in the minimum wage per hour is offset by a greater rate in decreased hours worked—thus potentially leading to further lost earnings.

It’s notable that this is a study commissioned by the City of Seattle, and likely the city was hoping for a different outcome. The findings from Seattle do not bode well for other jurisdictions implementing a $15 minimum wage (including Ontario and Alberta) or those considering it.

The evidence shows that raising the minimum wage actually harms low-wage workers.

This blog post was co-authored by David Hunt, a Fraser Institute research intern.