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September 24, 2018

Job killer or creator?

Workers in New York City rally for a minimum wage increase in 2015.

The All-Nite Images/Wikimedia Commons

In 2012, hundreds of New York City fast-food workers walked off the job to demand higher pay. They wanted $15 per hour.

Workers from health care, education, and other industries soon joined the movement that became known as the “Fight for $15”, which has pushed for minimum wage increases in more than 300 cities around the globe.

Critics derided it as a job killer and claimed to have the evidence to support it. But the impact that wage pressures have on employers’ hiring decisions is far from certain.

A paper in the September issue of the American Economic Review looks at what is likely to happen in three cities — Seattle, Los Angeles, and San Francisco — that passed laws increasing the minimum wage to $15. Authors Paul Beaudry, David Green, and Ben Sand hoped to shed light on how an increase in labor costs affected the employment prospects for workers.

Figure 1 from Beaudry et al. (2018)

The figure above from their paper shows the predicted changes in the employment rate for each city resulting from the $15 per hour law. The effects vary depending on where someone was along the wage scale. The employment rate is predicted to drop by over 10 percent for workers earning below $10 per hour in Seattle. Meanwhile, there is a slightly smaller 7 percent decline for workers at or below $15.

Overall, the negative impacts are predicted to be largest in Los Angeles and smallest for San Francisco, due to the fact that Los Angeles had a greater share of people being paid at the low end. More people in San Francisco were already being paid close to the $15 threshold, and therefore the effects were smaller by comparison.