Seattle Min Wage Hikes Crushing The Poor: 6,700 Jobs Lost, Annual Wages Down $1,500 – UofW Study

Tyler Durden's picture

Just last week we noted that McDonalds launched plans to replace 2,500 human cashiers with digital kiosks like the ones below (see: McDonalds Is Replacing 2,500 Human Cashiers With Digital Kiosks: Here Is Its Math):

 

Of course, no matter how much anecdotal and/or hard evidence is presented to liberals on the negative consequences on higher minimum wages they simply can’t be convinced it’s a bad idea.  Somehow, the basic economic concept that raising the price of good (i.e. wages) would somehow destroy demand (i.e. employment levels) for that good just does not compute in the minds of progressives.

Never the less, below is yet another study from economists at the University of Washington that reveals some fairly startling takeaways about Seattle’s minimum wage.  Per the chart below, minimum wages in Seattle increased from $11 in 2015 to $13 in 2016 and $15 in 2017 for large employers.

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To our total shock, the study found that higher minimum wages caused a 9.4% reduction to total hours worked by low-skilled workers, or roughly 14 million hours per year.  Given that a full-time employee works 2,080 hours per year, that’s equivalent to just over 6,700 full-time equivalents who have lost their jobs, just in the city of Seattle, courtesy of moronic politicians who don’t seem to grasp basic mathematical concepts.

Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. These estimates are robust to cutoffs other than $19.45  A 3.1% increase in wages in jobs that paid less than $19 coupled with a 9.4% loss in hours yields a labor demand elasticity of roughly -3.0, and this large elasticity estimate is robust to other cutoffs.

Adding insult to injury, pay hikes weren’t nearly enough to offset lost hours…

Importantly, the lost income associated with the hours reductions exceeds the gain associated with the net wage increase of 3.1%. Using data in Table 3, we compute that the average low-wage employee was paid $1,897 per month. The reduction in hours would cost the average employee $179 per month, while the wage increase would recoup only $54 of this loss, leaving a net loss of $125 per month (6.6%), which is sizable for a low-wage worker.

To our complete ‘surprise’, the study found that demand for low-wage jobs is more elastic than prior studies from more liberal institutions may have suggested.  Shockingly, low-wage jobs are apparently particularly susceptible to automation…who knew?

These results suggest a fundamental rethinking of the nature of low-wage work. Prior elasticity estimates in the range from zero to -0.2 suggest there are few suitable substitutes for low-wage employees, that firms faced with labor cost increases have little option but to raise their wage bill. Seattle data show – even in simple first differences – that payroll expenses on workers earning under $19 per hour either rose minimally or fell as the minimum wage increased from $9.47 to $13 in just over nine months. An elasticity of -3 suggests that low-wage labor is a more substitutable, expendable factor of production. The work of least-paid workers might be performed more efficiently by more skilled and experienced workers commanding a substantially higher wage. This work could, in some circumstances, be automated. In other circumstances, employers may conclude that the work of least-paid workers need not be done at all.

Here is a look at the estimated percentage change in hours worked…

 

…and total hours.

 

Conclusion: Keep up the good fight, Bernie.  With policies like these, Nancy Pelosi may be the least of Democrats’ worries.

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Unreconstructed Southerner

A Utopian Dream; everybody gets to live off Other People’s Money. It’s like an economy based upon everyone taking in each other’s laundry. These freakin’ communists just Don’t Get It.

Iconoclast421
Iconoclast421

The sad thing is that the min wage hasnt even fully kicked in yet. It is still $13 for “small employees”.

Card802
Card802

Raising a government mandated minimum wage failed everything progressive liberals promised it would fix???????

Give Trump a go at it.

comment image

Trump's own words
Trump's own words

What do you have to lose, eh?

Iska Waran
Iska Waran

$15/hour costs employers about $18/hour with FICA, Medicare, federal unemployment tax, state unemployment tax. Your typical Noodles & Company or Chipotle has at least 6-7 employees working at one time. That’s $126/hour just for labor. Throw in food costs, cost of space, utilities, etc. You’ve got to sell a lot of burritos just to break even.

Anonymous
Anonymous

Even more than that if you add in Workman Compensation.

Sometimes that by itself can be way far more than all other combined taxes.

Westcoaster
Westcoaster

When I ran a biz with employees, I always looked at the workers comp bill as a bug in the soup. It was about as welcome and nothing but dictate from bureaucrats.

MarshRabbit
MarshRabbit

Workers Comp is more of a benefit to the employer than the employee. If the employer is in compliance with the Workers Comp Law, he can’t be sued for a work-related injury. If we get rid of Workers Comp, the employer will have to face a lawsuit for every work-related injury. I doubt they want that option.

Wip
Wip

With all the jobs lost, and especially over the next 10 years, WHAT IS THE ANSWER?

I do not think this time is different. New tech is not creating more jobs. The tech is destroying way more than it is creating. Hence the push for a UBI.

Jus sayin

TPC
TPC

10k a year ends up costing us 3.2T dollars per year…..just for UBI.
Free medicare for all ends up costing us an additional 3T.

Thats a third of our GDP just in UBI and healthcare.

The solution is to make everything cheaper to produce so that we can more easily meet the needs of the people we are making. The solution is NOT to introduce governmental scarcity even further into the markets.

rhs jr
rhs jr

UBI- Universal Bankruptcy Inevitable?

Wip
Wip

Just to be clear, I’m not advocating a UBI. I’m just saying it’s practically baked into the cake lest we become…pick any turd world country.

Oh, I guess we are doomed to become one anyway so what the hell.

I say we need a combination of population control and WWIII.

Geezus!
Geezus!

So McDonalds would NOT install kiosks even if there were no minimum-wage mandates? Of course they would!!!

The problem is that there aren’t ENOUGH government regulations, and the ones that are in place work by the ‘sanctioning principle’: Government can only manipulate those which it can sanction (positively or negatively.)

Since Government wants to remain ‘freindly’ to corporations and other large-scale employers, they will never enact legislation that would force the Employer to act or to not act – the supremacy of the private contract.

That is the bargain that you get when you adopt a corporate democracy. Any legislation of the sort that is essentially NEEDED to support Minimum Wage is seen automatically as “Communist” (or whatever other incorrect buzz-word you give to an authoritarian-or-centrist government.)

Anonymous
Anonymous

Kiosks have been viable for years and years now, why do you suppose to do it now and not at an earlier date?

I’m guessing the minimum wage hikes is what gave the incentive to otherwise borderline economic returns from them.

Geezus!
Geezus!

It was a chance for the public to once again blame government. It was the right time for that corporate decision, since consumers are persuaded by emotions, not rational analysis.

Just look at the threads on this site!

“Borderline economic returns”??? When’s the last time you did your day-to-day banking with a human teller? And never mind that the former tellers are now selling mutual funds and that banks continue to be record-setting employment growth vehicles…

11:11 on my clock
11:11 on my clock

In effect, the big corporations WANT the min wage increase to cover their decision to automate. Everyone wins except the one with the pink slip.

Llpoh
Llpoh

No one WANTS employees. No one. If I have any other alternative, I will take it. Being an employer sucks the big wazoo.

Geezus!
Geezus!

Choose your conspiracy theory though.

I’ve just proven that they’re interchangeable…

Hollow man
Hollow man

Ha ha ha

Dave
Dave

I voted for a minimum wage increase in Arizona just so something like this would happen.

David
David

The loss of jobs is a feature, not a bug. Win win for the democrats, those getting the raise credit them, those out of work will vote for more free stuff.

Iska Waran
Iska Waran

^this

Anonymous
Anonymous

meanwhile in Indiana, I could not get into two places because they did not have enough servers to sling the hash…at a certain rate folks say forget it and nobody gets to eat. Everyone loses.

and relative to Seattle, my wallet was equally lite after eating out so its not like Indiana was such a bargain relative to Seattle…so where is the money going?

Flying Monkey
Flying Monkey

The FED does not have the poor’s back.

It reduces real the cost of capital to labor by manipulating interest rates low. It makes it even more financially attractive for firms to cut their minimum wage order taker jobs and replace them the automation. They don’t have to deal with the automated order taker coming in late or not coming in at all.

It also does do much to keep from inflating the money supply and that shows up in reduced purchasing power.

The FED is not the minimum wager’s friend.

Assume the Kiosk costs $15,000 it is paid off in 1/2 year of minimum wages and FICA. Even if it costs $32,000 it is still paid off within a year.

The marginal value of labor drops relative to capital as productivity improvements come from increasing capital implementation. It would be nice if the poor benefited from the falling prices, the FED makes sure there is an inflation since deflation is deadly to debtors and banks.

When the FED makes the use of capital cheaper it helps productivity increases but doesn’t help those with few skills.

I have the impression the FED wants to drown the economy in goods, which are so cheap the State can buy the production that the poor consumes and not have a big cost impact. They think if they raise the potential output so much that it will reduce costs so great that those displaced can be supported by the State at relatively little cost. Then everybody benefits by the bountiful production of ultra cheap cheap goods. Those that have the skills have to work, and those that don’t have the skill, don’t have to work.

“From each according to his ability, to each according to his needs”

MarshRabbit
MarshRabbit

“Those that have the skills have to work….”. There is no such thing as unskilled labor. Even McDonald’s employees are skilled, especially in issues of cook surface/utencil cleanliness and avoiding cross contamintion. That’s why food poisoning cases at fast food outlets are rare, despite the volume.

MarshRabbit
MarshRabbit

“Somehow, the basic economic concept that raising the price of good (i.e. wages) would somehow destroy demand….” Labor is not the only cost businesses face, but it’s the only cost that elicits the hue & cry of doom & gloom. Let me hear you guys object to increased costs of commercial rent, utilities, cost of goods sold, etc.

Boat Guy
Boat Guy

The cost of raw materials go up a business raises the price , the cost of utilities go up the business raises the price but if the cost of labor goes up OMG WERE OUT OF BUSINESS !
Fact in today’s America a full time 40 hour job for a skilled person should be $65 per hour and up ! The system expects the hourly person to pay government employees such as school teachers police and fire service people wages and benefits in that range . Don’t think so you better get out that calculator and do a little fact checking . Better yet just look at the employee parking lot of any government worker . It’s not that the government employees do not deserve fair compensation they do . It just should not be better than the average 40 hour skilled person forced to be taxed to provide a lifestyle for others as the taxed individual continually loses ground . Shit working people in America , the few still standing are taxed to pay people to promote the lie of how everything is improving economically . When it snows look who shows up for work , in many cases the rest are not needed . I had an experience as I was facing some life or death medical issues after working over 42 years . My doctors and federal law placed me on to social security disability and Medicare and was in the transition of ending my full time work . It snowed about 2 inches my appointment with social security was cancelled so I cleaned my company truck off drove to the job site got my trainee replacement geared up , we had a deadline , completed the day’s task but the social security employees could not even show up late to walk from a secure covered garage to a fucking desk job !
Bite Me ! I survived my life saving surgery but had to slow down for good ! Yesterday a young man offered to cut my grass for $30 , this is one of the few chores I still do it just takes me 3 times longer to do it . He was a polite young teenager with a lawnmower weedeater and a broom , I said go for it . I did not eye fuck him through the process just let it go ! He stays hard at it and did those little extras only someone with ethics and pride would do . Something in short supply these days when he was nearly finished I walked out and shook his hand thanked him and gave him $40 . He worked about an hour and a half restoring my faith in young Americans . I encouraged him to keep at it . I hope he can !

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