SeaTac and Other Minimum Wage Talk

A highly contested initiative was placed onto SeaTac's ballot this year. The initiative started as a petition and finally distilled into Proposition One on the ballot. The aim of Proposition One was to raise the minimum wage to a "living wage" of $15 an hour. This is just one of many such initiative taking root in America, but is it for the best? The economic theory of supply and demand shows what ought to happen when price floors like this occur. The theory states that buyers of human resources will consume less if the price per hour rises. If this is the case we should see unemployment rise when initiatives like this are put in place. We should also see low-skilled workers being replaced by more productive, more skilled labor than the original labor force. In essence it is theorized that by raising the minimum wage to help low-skilled workers the ending effect is to actual economically hurt those in question. Will this be the case at SeaTac? Due to the very nature of SeaTac it may be that there will be no decrease in workers employed. As an airport they may be able to pass the new costs associated with the law onto consumers.

To help me answer this question I tried consulting multiple studies on the effects of raising the minimum wage. All the studies I found were like this one presented in The American Economic Review. The studies either concluded that there was no negative employment effects or that they could not determine the effect. I hope that the data for SeaTac is recorded and studied if this initiative passes. Perhaps it could lend more insight into this subject. For now we will have to wait for the votes to be finalized. According to The Seattle Times we have a few more days and possibly await a  recount before the vote is finalized.

1 comment:

Dave Tufte said...

Ryan Brockway: 94/100 (Initiatives not initiative)

The Seatac vote has been tallied, and recently decided in favor of moving to the "living wage".

There are 3 issues here: 1) the Card and Kreuger results, 2) the Seatac vote itself, and 3) the "living wage" issue.

Card and Kreuger are the authors of the article Ryan cites in his second paragraph. Both are famous, and Kreuger has ridden this result into a job at the Obama White House.

Card and Kreuger provided pretty solid empirical evidence that the theoretical idea that raising the minimum wage would decrease employment is not supported by the data.

A lot of shots have been taken at their work, but the fact is, we're still talking about it 20 years later because it appears to be (somewhat) solid. A good summary of those results is at Rortybomb.

I'm skeptical of all of this, but as a professional I have to temper my skepticism and admit that there's something odd going on here that I can't explain. So, in short, don't conclude that raising the minimum wage is bad for workers.

The second point is that the vote only counts Seatac, an incorporated community that isn't very big, and is dominated by SeaTac airport. So, it's not clear that it's a case that's general enough to learn much from.

The third point is the living wage as opposed to the minimum wage. A living wage is sort of super minimum wage; in this case about 50% higher than the minimum wage. I've always found the argument for the living wage to be somewhat ridiculous: it's a position that what you need to buy should dictate what someone should pay you, rather what you're capable of producing dictating what you can buy. But, if the minimum wage doesn't work like a price floor, then I'm not sure I have a solid position for opposing the living wage.

But, all of this does not mean that you should be flippant about price floors. The Card and Kreuger results haven't got any economist questioning price floors. Instead, they have people arguing that it is other (more complex) features of labor markets, like the search for job openings, that are relatively more important.