Courtesy of Occupy Democrats, with over 8,000 likes and 3,400 shares. This meme tries to shoot down the argument that raising the minimum wage results in price increases, by pointing to Seattle and their $15/hr initiative.
It lists the University of Washington as the source, which has a Minimum Wage Study Team that released an analysis this month. This research team is analyzing certain effects on Seattle’s $15 minimum wage implementation, and one year into the study they claim there is “little to no evidence” of price increases in Seattle compared to other areas. The study is commissioned from the city of Seattle, which could raise bias issues, but we’ll assume their methodologies are sound, and their claim is correct.
Even so, minimum wage opponents don’t need to resort to crying “correlation doesn’t equal causation” to see there is plenty of other context missing from this meme that makes it misleading.
Seattle’s $15/hr Minimum Wage is not in Effect Yet
Kind of an important bit of context, eh? Notice the meme is a bit sneaky in its wording, saying “after Seattle started raising its minimum wage…”. As with most minimum wage increases, they don’t happen all at once, but are gradual. In Seattle’s case, the $15/hr wage won’t be fully implemented until 2021. A chart released by the city is shown below.
The timeline is different depending on the employer. For those who employ over 500 workers (the first 2 columns), the implementation is a bit quicker than those who employ 500 or less (the last 2 columns). For the McDonald’s part-time worker, the $15 level kicks in on January 1, 2017, while an employee of a smaller business might not get to the $15 level until January 2021.
Back to the Study
The Seattle law took effect on April 1, 2015, so the study’s first year analysis mostly included 2015 wage levels. This means we’re talking primarily about analyzing a $10-11 minimum wage, not an $11-13 one, and certainly not a $15 one. Since Washington State already has a $9.47/hr minimum wage, the difference is quite small, especially considering only 3.9% of workers make the minimum wage. This means we shouldn’t expect any significant differences with Seattle anyway. The study, and its findings, will become much more meaningful in subsequent years, as the Seattle minimum wage starts to diverge from the rest of the state. Right now, the study is only useful for media headlines that don’t care to dig deeper.
Since the wage increases haven’t really been felt yet, it’s more useful to look at other data, like what employers are planning to do when the increases do kick in. Below is a chart from the same study the meme uses as a source. It presents what employers expect to do after the minimum wage increase kicks in.
We see that 62% plan to raise prices on goods or services, 30% plan to add service charges, and 30% plan to reduce employment. It’s possible employers won’t follow through with these plans, but it gives plenty of ammunition for those who argue against the minimum wage.
Prices Fell Everywhere
It’s important to remember 2015 was a year where the dollar was very strong, and many commodities (like oil) fell substantially. This likely has far more of an effect on prices than a slight minimum wage bump. In fact, Washington state didn’t even raise their minimum wage in 2016, because the consumer price index they use actually fell by .3%. In this environment of falling commodity and transportation prices, it’s not surprising prices didn’t increase in Seattle, even if the minimum wage bump had a slight pressure to increase them. When the meme says prices dropped in Seattle, they forget to mention they fell everywhere.
The (biased) American Enterprise Institute’s Mark Perry has compiled data in the past year about Seattle losing jobs, particularly restaurant jobs, when the rest of Washington (and America) were gaining them. Correlation does not equal causation with these results either, as there could be other explanations, but it does give credence to those who argue this law will hurt businesses and the poor in Seattle once implemented. After all, the primary objection to the minimum wage is it hurts employment.
There is just not enough evidence yet about the effects of Seattle’s minimum wage increase, because it hasn’t kicked in yet. It will probably be at least another few years before any studies provide meaningful evidence of its effects.
However, it’s important to clarify the position of those who are against the minimum wage. Those who understand economic theory do not, as the meme suggests, claim that minimum wage increases “will raise prices”. The minimum wage is just one of many economic effects, and there could be other factors influencing prices (like oil prices plunging) which could be more significant.
The more economically savvy observer says, “increasing the minimum wage will tend to increase prices all things being equal“. Phrasing it this way jives with economic theory and logic. Saying “minimum wage has no effect on prices”, as this meme suggests, would be an odd position not backed up by any theory.