On the Money

Seattle's minimum wage hike may have cut wages and jobs: Study author

Key Points
  • Seattle voted to gradually hike its minimum wage to $15, but workers have actually earned less.
  • "Employees increased wages...but they also cut hours and they cut jobs," a University of Washington professor told CNBC.
  • He cautioned that for several reasons, Seattle's experience may not be typical.
Maximum minimum wage?

In the quest for a higher minimum wage, how high is too high?

In 2014, Seattle voted to gradually hike its minimum wage to $15 an hour, with the rate jumping from $11 to 13 last year. Yet on average, low-wage workers have made $125 per month less.

That's a key result of a new University of Washington study that found that the hourly wage hike could in fact be costing jobs. The study, released last week, examined low-wage employment within the city of Seattle from 2014 to 2016.

"What we found," study co-author Mark Long explained to CNBC's "On the Money" recently, "is that employees increased wages, which you'd expect given the mandate of the law, but they also cut hours and they cut jobs."

Long, a professor of public policy at the University of Washington, added that as a product of fewer hours and available jobs, "the net amount paid to low-wage workers declined instead of increased."

The findings come as many states and cities are passing new regulations to mandate a minimum wage increase over the next few years. Nationally, fast food workers are among those actively seeking a $15 and hour minimum pay, and labor unions are organizing a "Fight for $15" push.

'Too fast to adjust'

Economists have long debated the effect of minimum wage hikes on working-class jobs. Many small businesses usually can't afford the expense, while even some major companies will find ways to save on labor rather than paying higher salaries. Recently, some big corporations have ramped up automation at key low-skilled jobs—in the process endangering some of those positions.

Long explained that during the time the study covered, Seattle employers had two separate minimum wage increases over a short period of time.

"When the city raised minimum wage for large employers from $9.47 to $11 (in April 2015) we see an increase in wages, but don't see a statistically significant decline in hours worked," he said. However, "it was only nine more months until (minimum wage) was raised to $13."

He said that after that change in January 2016, "we saw a sudden decrease in total low wage hours about a 9 percent reduction in hours and a 5 percent reduction in total number of jobs."

Long reasoned that the quick second wage increase of two dollars an hour, "could have been… too fast for businesses to adjust."

The data available in the U.W. Seattle study is unique. Long told CNBC that Washington is only one of four states that break down employment data by hours and wages. Oregon, Minnesota, and Rhode Island are the others. For that reason, Long cautioned that the results of his study can't be directly applied to other locales.

"One thing you need to be really careful about in terms of evaluating this study, is this is looking at a local minimum wage just for the city of Seattle itself, which is a small share of the total metro area. A federal minimum wage would have very different dynamics," he said.

The federal minimum wage has remained at $7.25 an hour since July of 2009.

—On the Money airs on CNBC Sundays at 7:30 pm, or check listings for air times in local markets.