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My View: Different wage studies get different results
The stronger of two studies of Seattle's recent minimum-wage hikes shows clear gains in weekly earnings and no loss of jobs or hours. These University of California-Berkeley findings contrast with the negative outcomes recently presented to the Oregon Business Alliance by the University of Washington's Jacob Vigdor (Sunday, Sept. 25).
Research teams at both UC Berkeley and UW assessed the first two years of Seattle's six-year process to raise the minimum wage paid by all Seattle employers to $15 by 2021. Today, Seattle's minimum wage ranges from $15, at large companies that don't contribute to health care, to $11 at small firms where employees are assisted with health insurance payments or earn at least $2 an hour in tips.
To explain why study findings differ, UC Berkeley economist Michael Reich wrote to the Seattle mayor's office, highlighting several of the largest differences in methods. Perhaps most important, the UW study ignored nearly half of low-paid workers, by omitting franchises and other businesses with more than one establishment. Seattle's ordinance is particularly aimed at low-wage, multisite companies, requiring the fastest wage increases to be paid by firms with more than 500 employees worldwide that do not provide health insurance.
Second, the UW study looked only at jobs paying $19 an hour or less, but job gains in better paid positions far outnumbered job losses at lower wage rates, while unemployment fell. The number of food service jobs in single-establishment firms grew by 4,500 in two years despite a decrease of 150 jobs paying $19 or less, an overall gain 30 times bigger than the decline at the bottom.
The UC Berkeley study focused on food service because that's the most affected industry, paying minimum wage to more of its workers than any other industry. In Oregon, the biggest minimum-wage occupations are found in food service, and among the occupations expected to grow most by 2024.
Seattle's success at pushing fast food restaurants to pay better wages without cutting jobs, is most likely due to higher sales, lower turnover and better employee productivity.
When low-wage workers earn more, they spend more, increasing local sales in ways that business owners often don't anticipate. In February, Marketplace reported that Bill Phelps, CEO of Wetzel's Pretzels — projected to gross $165 million in 2016 from over 300 stores — had opposed minimum-wage increases, fearing they would hurt profits, and that sales would fall if he had to raise prices to compensate. But both times California raised the minimum wage, sales at his California stores immediately shot up. "I was shocked," Phelps said. "I was stunned by the business."
Economists have long known that raising wages at the lowest rungs of the pay scale significantly cuts employee turnover. Decreasing turnover reduces paperwork and lowers company costs for recruiting and training.
Lowering turnover improves productivity, as employees gain experience. And higher wages incentivize employers to provide more training to boost employee productivity.
One strategy fast food companies have been using to hold down turnover, and wages, is being challenged in court. Evidently fast food companies are particularly likely to contractually forbid franchise owners from hiring employees from another franchise, according to recent research by Princeton economists.
Not only fast food workers but all Oregonians have a stake in pushing up pay in minimum-wage occupations like fast food. Oregonian fast food workers' household incomes are more than twice as likely as average to fall below the poverty line. More than a third of fast food workers have kids at home, and over 40 percent receive food assistance. We're all better off if all Oregonians earn a living wage.