Are Higher Minimum Wages Eliminating Restaurant Jobs?
One early report suggests hiring has slowed in the cities that changed their policies this year, but it’s probably too early to tell, economists say.
Few economic policies have been as hotly-debated as raising the minimum wage, and now that seven major U.S. cities have implemented increases in the last year, the race is on to assess their impact.
While many Republicans and business groups have opposed raising the wage floor on the grounds that employers will slow hiring or lay people off, major economic studies have found little negative impact on jobs. Yet because the increases passed in cities phasing in a $15 minimum wage—such as Seattle and San Francisco—are significantly bigger jumps than in the past, economists have said the old assumptions may not apply.
“For the minimum wage increases that we have really good data and really good scholarship on, there isn’t much of a tradeoff between increasing people’s wages and employment,” said Ben Zipperer, a research economist at Equitable Growth, a D.C. think tank started by veterans of the Clinton and Obama administrations. “That’s very much an open question about these new minimum-wage increases.”
The success or failure of the policies in cities raising the wage will frame the debate over the federal minimum wage, where the push by Democrats for an increase has stalled in the Republican-controlled Congress. Even a former chairman of President Obama’s Council of Economic Advisers, Alan Krueger, has cautioned recently that “a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”
Several economists said it’s too soon to get good data to evaluate the changes that went into effect earlier this year, but one conservative group is putting out a report on Friday that takes an early look at trends in the restaurant industry over the last several months. The paper by researchers at the American Action Forum found that growth in restaurant employment in cities that raised their minimum wage in 2015 was slower than in their respective states as a whole. Restaurant jobs since the spring in Seattle’s metropolitan area, for example, have grown just 0.6 percent since , while they have grown by 6 percent across Washington state. In San Francisco, restaurant jobs have risen by 1.4 percent compared to 3.4 percent in the surrounding area. (Seattle’s minimum wage rose by more than $1.50 to $11 an hour on its way to $15, while San Francisco’s is now $12.25, up from $11.05.)
“While cities continue to phase in large minimum wage hikes, the verdict is still out on how these policies will impact local employment,” wrote Ben Gitis, the group’s director of labor policy. “The early data, however, do indicate a slowing of restaurant employment growth.”
Another free-market oriented economist, Mark J. Perry of the American Enterprise Institute, has been looking at the same data from Seattle and drawing a similar conclusion. The sharp increase in the minimum wage, he wrote last month, is “one likely cause of the stagnation and decline in the Seattle area restaurant jobs this year” as compared to Washington state more broadly.
Left-leaning economists, however, dismissed the American Action Forum report, saying it was based on poor methodology and using preliminary data that could be revised significantly in the coming months. “Everything that they’re documenting could be statistical noise,” said David Cooper, an analyst at the liberal Economic Policy Institute.
Arindrajit Dube, an economist at the University of Massachusetts at Amherst who studies the minimum wage, said the strongest data comes from quarterly census reports that are published with several months worth of lag time. “It is simply not possible to reliably assess employment trends following minimum wage increases in cities like Seattle and San Francisco yet,” he wrote in an email. “Given data availability and reliability, I would essentially ignore any reports claiming to estimate employment effects from these policies.”
Cooper and Zipperer also questioned the decision to compare urban areas like Seattle and San Francisco to their surrounding states, since their economies are quite different. Gitis said he wanted to be able to focus on the restaurant industry, since it includes nearly half of all workers earning the minimum wage. And he pointed to data showing that restaurant job growth in cities he examined, which also included Chicago and Washington D.C., had been significantly faster in the year prior to the implementation of the higher minimum wage. “When you do focus more specifically on the workers who will actually be impacted by the wage hike, the more likely you will find these negative employment trends,” Gitis told me.
For supporters of raising the minimum wage, a modest decrease in jobs might be a worthwhile tradeoff if it means that low-income workers can escape poverty and improve their quality of life. And an initial decrease in hiring could obscure other changes that further mitigate harm to businesses. “Employers hire fewer people, but at the same time, fewer people leave those jobs,” Zipperer said. “Those happen to even out, so there’s not much of an effect on the overall employment level.”
Gitis argued, however, that raising the floor doesn’t help the neediest people as much as other policies, like boosting the Earned Income Tax Credit. “You are transferring the money from people who either can’t find a job or are losing their job to people who are fortunate to keep their job,” Gitis said about the minimum wage. “Very few of the benefits go to people who are actually most in need.”
Still, he said that history shows that the restaurant industry usually “adjusts” over time. “I think this will be a big learning period,” Gitis said. “These minimum wage laws are just starting to be phased in.”