NBER WORKING PAPER SERIES MINIMUM WAGE INCREASES, WAGES, AND LOW-WAGE EMPLOYMENT: EVIDENCE FROM SEATTLE

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1 NBER WORKING PAPER SERIES MINIMUM WAGE INCREASES, WAGES, AND LOW-WAGE EMPLOYMENT:EVIDENCE FROM SEATTLE Ekaterina Jardim Mark C. Long Robert Plotnick Emma van Inwegen Jacob Vigdor Hilary Wething Working Paper research infrastructure grant, R24 HD042828, to the Center for Studies in Demography & Ecologyat the University of Washington. We are grateful to conference session participants at the 2016 fallassociation for Public Policy and Management and 2017 Population Association of America meetings;to seminar participants at the University of California-Irvine, Montana State University, National University of Singapore, University of Houston, and University of British Columbia; members and guests of theseattle Economic Council, and to the Seattle City Council and their staff for helpful comments onprevious iterations of this work. We also thank Sylvia Allegretto, Marianne Bitler, David Card, RajChetty, David Cutler, Arin Dube, David Neumark, and Michael Reich for discussions which enriched the paper. Any opinions expressed in this work are those of the authors and should not be attributedto any other entity. Any errors are the authors sole responsibility. The Seattle Minimum Wage Studyhas neither solicited nor received support from any 501(c)(4) labor organization or any 501(c)(6) business organization. The views expressed herein are those of the authors and do not necessarily reflect theviews of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies officialnber publications by Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, and Hilary Wething. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quotedwithout explicit permission provided that full credit, including notice, is given to the source.

2 Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor, and Hilary Wething NBER Working Paper No June 2017 JEL No. H7,J2,J3 ABSTRACT This paper evaluates the wage, employment, and hours effects of the first and second phase-in of theseattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in2015 and to $13 per hour in Using a variety of methods to analyze employment in all sectorspaying below a specified real hourly rate, we conclude that the second wage increase to $13 reducedhours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased byaround 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wageordinance lowered low-wage employees earnings by an average of $125 per month in Evidenceattributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies. Ekaterina Jardim Daniel J. Evans School of Public Policy and Governance University of Washington Box Seattle, WA erosh@uw.edu Mark C. Long Daniel J. Evans School of Public Policy and Governance University of Washington Box Seattle, WA marklong@uw.edu Robert Plotnick Daniel J. Evans School of Public Policy and Governance University of Washington Box Seattle, WA plotnick@uw.edu Emma van Inwegen Daniel J. Evans School of Public Policy and Governance University of Washington Box Seattle, WA emmavani@uw.edu Jacob Vigdor Daniel J. Evans School of Public Policy and Governance University of Washington Box Seattle, WA and NBER jvigdor@uw.edu Hilary Wething Daniel J. Evans School of Public Policy and Governance University of Washington Box Seattle, WA hwething@uw.edu

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7 2.1 What is the relevant labor market?

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10 2.2 Debates over methodology

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16 5.1 Determining a threshold for low-wage employment analysis anywhere

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18 5.2 Causal identification strategy Y ΔY = Y / Y, 1 t = 0

19 ΔY = α + ψ + β T + ε, α ψ t = q T t = q

20 q = 1 q = 4 q = 7 q = 9 β = β β = (1 + β )1 + β 1 β = (1 + β )(1 + β )(1 + β ) 1

21 Kμ ΔY = λ μ + β T + ε μ λ r = 1r = R min ΔY, w ΔY,

22 w = 1 r w 0 w q β = ΔY, w ΔY β

23 6.1 Simple first-difference analysis

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26 6.2 Falsification tests

27 6.3 Causal effect estimates

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30 6.4 Elasticity estimates

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32 6.5 Reconciling these estimates with prior work actual

33 dramatic change

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38 Social Security and Medicare)

39 American Economic Review American Journal of Political Science IZA Discussion Paper British Journal of Industrial Relations.. IZA Discussion Paper No Washington Center for Equitable Growth. IRLE Working Paper No Industrial Relations Econometrica Econometrica What Does the Minimum Wage Do? Labour Quarterly Journal of Economics Industrial and Labor Relations Review

40 The American Economic Review National Bureau of Economic Research National Bureau of Economic Research, National Bureau of Economic Research Industrial & Labor Relations Review The Review of Economics and Statistics Journal of Labor Economics Review of Economics and Statistics Industrial and Labor Relations Review Journal of Business & Economic Statistics Journal of Human Resources

41 Industrial and Labor Relations Review Industrial and Labor Relations Review National Bureau of Economic Research, American Economic Review CESifo Database for Institutional Comparisons in Europe Minimum Wages ILRReview Journal of Human Resources Econometrica

42 The US Labor Market: Questions and Challenges for Public Policy

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45 Panel A: All Industries Panel B: Food and Drinking Places (NAICS 722)

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