For decades, liberals have been under the illusion that raising the minimum wage magically raises incomes for poor people. Unfortunately, unless one slept through Econ 101, one cannot help but recognize that raising the minimum wage helps only a portion of the working poor, and keeps the marginally productive out of the workforce.
Seattle was one of the first cities who noisily proclaimed the dawn of a new era for the working poor by gradually raising the minimum wage in that city to $15 an hour. However, a new study by University of Washington economists shows statistically what ought to be obvious logically.
When Seattle officials voted three years ago to incrementally boost the city’s minimum wage up to $15 an hour, they’d hoped to improve the lives of low-income workers. Yet according to a major new study that could force economists to reassess past research on the issue, the hike has had the opposite effect.
The city is gradually increasing the hourly minimum to $15 over several years. Already, though, some employers have not been able to afford the increased minimums. They’ve cut their payrolls, putting off new hiring, reducing hours or letting their workers go, the study found.
The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city. The study, published as a working paper Monday by the National Bureau of Economic Research, has not yet been peer reviewed.
On the whole, the study estimates, the average low-wage worker in the city lost $125 a month because of the hike in the minimum.
The reaction among liberal “economists” (a phrase that I’ll address later) has been swift, primarily because past statistical studies have shown presumably the positive impact from raising the minimum wage.
The paper’s conclusions contradict years of research on the minimum wage. Many past studies, by contrast, have found that the benefits of increases for low-wage workers exceed the costs in terms of reduced employment — often by a factor of four or five to one.
“This strikes me as a study that is likely to influence people,” said David Autor, an economist at the Massachusetts Institute of Technology who was not involved in the research. He called the work “very credible” and “sufficiently compelling in its design and statistical power that it can change minds.”
Yet the study will not put an end to the dispute. Experts cautioned that the effects of the minimum wage may vary according to the industries dominant in the cities where they are implemented along with overall economic conditions in the country as a whole.
And critics of the research pointed out what they saw as serious shortcomings. In particular, to avoid confusing establishments that were subject to the minimum with those that were not, the authors did not include large employers with locations both inside and outside of Seattle in their calculations. Skeptics argued that omission could explain the unusual results.
The article clearly demonstrates how economics is currently practiced. Essentially, economists are no more than statisticians who use data to back up preferable policy objectives. They do not explain how people create and exchange scarce resources so much as come up with equations and relationships that rationalize what they think government policy ought to be.
In comparison, Austrian School economists seek to understand how people act in the as value-free a manner as possible. While they may have their own opinions about what government policy ought to be, the Austrian School seeks to understand how people actually behave. It is through this process that one can understand, without the need of economic data, the harmful effects raising the minimum wage would have on the working poor.
While it is encouraging to see a statistical study come to the same conclusion, do not expect liberal economists to change their mind on the matter anytime soon.