Jobs Endangered by a $15 Minimum Wage in Seattle

Both candidates in the Seattle mayoral race support an effort to raise Seattle’s minimum wage to $15 per hour.  Mayor Mike McGinn says he would even support an effort to set the minimum wage even higher.  Mayor McGinn and challenger Ed Murray are foolish if they believe that the Seattle mayor or City Council can ignore the laws of supply and demand.  A mandate that workers in lower paying occupations receive higher wages will lead to substantial job losses in these occupations.  The labor force in the city of Seattle is about one-third of the King County labor force and one fifth of the labor force in the Seattle metro area. This means that when Seattle laws make it more expensive to operate a restaurant, coffee shop, retail outlet or other business inside city limits, businesses will relocate to the suburbs and shoppers and customers will follow.

The economics of a minimum wage for a city is quite simple.  Employers in Seattle are price takers in the market for unskilled and less skilled labor.  It doesn’t matter how inelastic the demand for less skilled labor is in the aggregate, all that matters is the elasticity of demand for workers within city limits.  A large increase in the cost of hiring dishwashers or cashiers within Seattle merely shifts demand for these services to businesses outside city limits where the minimum wage is $9.15 and costs are lower.  The $15 minimum wage will destroy jobs in Seattle but will increase employment in some businesses in the suburbs.  The best substitute for shopping or dining in the city is shopping or dining in the suburbs.  Customers will be inconvenienced, unskilled workers in the city will be harmed and have to commute further to work.  However, business owners and unskilled workers in suburban areas could benefit from a $15 minimum wage in Seattle.

Mayors and mayoral candidates who support large increases in the minimum wage should also be required to specify which jobs in their cities would be endangered by their policies.  Following the International Union for Conservation of Nature which designates species as endangered, vulnerable or near threatened, I believe that politicians should acknowledge when their policies threaten the viability of certain jobs.  Politicians should also be required to use the same sort of designation to indicate the severity of the threat posed by their actions.  Politicians can make jobs extinct by raising the minimum wage so much that workers are priced out of the market for their services.

I propose that in Seattle:

• A job is endangered if 90% of current workers earn less than the proposed $15 minimum wage.
• A job is vulnerable if 75% of current workers earn less than the proposed $15 minimum wage.
• A job is near threatened if 50% of current workers earn less than the proposed $15 minimum wage.

The Bureau of Labor Statistics (in its OES data) lists 637 detailed occupations in the Seattle metro area.   In 120 of those occupations, employing 27.7% (over 390,000 workers) of the workforce, the median wage less than $15 per hour.  The following tables provides examples of occupations that are most at risk due to a $15 minimum wage.

There are 16 endangered jobs in Seattle.  These jobs are endangered because at least 90% of workers earn less than $15 per hour.  The following table lists some of the most common endangered jobs.  For example, there are 25,930 food preparation and servers in the Seattle metro area and 90% earn $14.07 or less.  A $15 minimum wage will likely cause restaurants in Seattle to lose business to suburban competitors.  Other jobs on this list are endangered by information technology.  For example, as the cost of hiring hotel and motel clerks increases, more businesses will use kiosks and encourage customers to check-in online.

Endangered Jobs in Seattle At Least 90% of Employees Earn Less   Than $15.00 per Hour
Occupation Title	Number of Workers	90th Percentile Wage
Food Preparation and Servers, Including Fast Food	25,930	$14.07
Personal Care Aides	9,100	$14.11
Dishwashers	5,080	$12.72
Dining Room Attendants and Bartender Helpers	5,010	$14.94
Home Health Aides	4,120	$14.65
Hosts and Hostesses, Restaurants and Lounges	2,930	$14.30
Hotel and Motel Desk Clerks	2,070	$14.82
Baggage Porters and Bellhops	1,070	$13.75

There are 33 vulnerable jobs in Seattle.  These jobs are vulnerable because at least 75% of workers earn less than $15 per hour.  The following table lists some of the most common vulnerable jobs.  For example, there are 12,590 cooks in the Seattle metro area and 75% earn $14.59 or less.  A $15 minimum wage will likely cause restaurants in Seattle to lose business to suburban competitors.  Other jobs on this list are vulnerable to technological change.  For example, as the cost of parking lot attendants and ticket takers increases, more businesses will use kiosks and other devices to substitute capital for labor.

Vulnerable Jobs in Seattle At Least 75% of Employees Earn Less   Than $15.00 per Hour
Occupation Title	Number of Workers	75th Percentile Wage
Restaurant Cooks	12,590	$14.59
Food Preparation Workers	7,300	$13.71
Maids and Housekeeping Cleaners	7,280	$13.82
Counter Attendants, Cafeterias and Coffee Shops	6,900	$12.38
Packers and Packagers	5,740	$12.40
Childcare Workers	4,620	$12.28
Amusement and Recreation Attendants	2,990	$12.56
Cleaners of Vehicles and Equipment	2,740	$14.65
Parking Lot Attendants	2,670	$12.28
Taxi Drivers and Chauffeurs	2,230	$14.58
Ushers and Ticket Takers	1,510	$13.64
Manicurists and Pedicurists	1,370	$11.59
Lifeguards	1,220	$11.79
Laundry and Dry-Cleaning Workers	1,120	$14.15

There are 71 near threatened jobs in Seattle.  These jobs are threatened because at least half of workers earn less than $15 per hour.  The following table lists some of the most common threatened jobs.  For example, there are 47,390 retail sales workers in the Seattle metro area and half of them earn $12.13 or less.  A $15 minimum wage will likely cause shops and stores in Seattle that employ these workers to lose business to suburban competitors.  Other jobs on this list are threatened by technological change.  As the cost of stock clerks and order fillers increases, more businesses will use computer and information technology to substitute capital for labor.

Near Threatened Jobs in Seattle At Least 50% of Employees Earn Less   Than $15.00 per Hour
Occupation Title	Number of Workers	50th Percentile Wage
Retail Salespersons	47,390	$12.13
Cashiers	26,110	$11.70
Stock and Material Movers	19,290	$13.76
Stock Clerks and Order Fillers	16,860	$13.84
Janitors	16,300	$13.74
Nursing Assistants	9,400	$14.43
Receptionists	9,270	$14.82
Security Guards	8,790	$14.02
Landscaping Workers	8,730	$14.36
Bartenders	7,610	$12.43
Counter and Rental Clerks	7,440	$13.57
Hair Stylists	5,500	$14.31
Bank Tellers	4,550	$13.58
Preschool Teachers	3,480	$13.69
Cafeteria Cooks	3,200	$14.82
Meat, Poultry and Fish Cutters	3,050	$11.43
Bakers	1,950	$13.56
Sewing Machine Operators	1,460	$11.65
File Clerks	1,360	$14.47

The mayoral candidates in Seattle may think they help workers in their city who are struggling in today’s economy by advocating a $15 minimum wage.  In fact, the mayoral candidates’ policies will harm the workers they would like to help.  These candidates tell Seattle residents that if they can’t find an employer willing and able to pay at least $15 per hour for their services, they will be prohibited from working inside city limits.  A $15 minimum wage in the city will cause Seattle residents to commute to the suburbs to work in stores, shops and restaurants. The only voters and businesses that should support this silly policy are those located outside Seattle city limits.

Washington DC’s $12.50 Living Wage Will Harm Working Class Residents of the District

Yesterday the Washington D.C. City Council approved a $12.50 living wage that would apply to retail establishments operating in spaces with at least 75,000 square feet if they are owned by companies with at least $1 billion in annual sales.  If Mayor Gray signs the bill the cost of operating big box retail establishments in the District will increase substantially.  The living wage ordinance is bad news for workers and consumers in Washington, D.C.  There is no doubt that the ordinance will reduce job and shopping opportunities for people who live and work in the District.  The biggest losers will be working class District residents who would have worked and shopped at the retail establishments that would have been built but for the ordinance.

The Washington Post’s Wonkblog erroneously claims that: (1) “the literature” suggests that raising minimum wages in cities has no negative effect on employment and (2) large corporations “are better equipped to absorb higher labor costs.”  Businesses are not sponges that exist to absorb costs – they operate to generate income for their owners, investors and shareholders.  If Washington D.C. adopts laws that raise costs for retailers, there is no shortage of alternative locations elsewhere in the U.S., Mexico, or China to locate retail outlets.

Wonkblog also believes that big box retailers can afford a nationwide $12 minimum wage because some Berkeley professors said so.  Apparently a $12 wage would lead to a “pretty negligible” increase in costs equivalent to 1.1% of revenue.   It is clear that Wonkblog does not understand how razor-thin profit margins are for big box retailers as they compete with each other and with online retailers.  Combined profits at Wal-Mart, Target, Home Depot, Lowes and Best Buy last year were 3.6% of their combined annual sales.  An increase in costs equivalent to 1.1% of revenue would put a massive dent in the profitability of brick and mortar retailers when one considers that online retailers would be largely immune to the higher costs caused by a $12 minimum wage.

The D.C. living wage will kill jobs in the District because retailers in D.C. compete with suburban retail outlets.  According to the Department of Labor the most common jobs in the retail sector are “cashiers” and “retail salespersons.”  The D.C. ordinance would require big box retailers in the District to pay wages (even to beginning entry-level employees) that are much higher than wages paid by other retailers in the metro area.  The most recent data from the Bureau of Labor Statistics Occupational Employment Survey indicates that 75% of cashiers in the Washington D.C. metro area earn less than $11.65 per hour and approximately 64% of retail salespersons in the Washington D.C. metro area earn less than $12.50 per hour.  In other words, the ordinance will cause big box retailers to continue to locate stores in suburban Virginia and Maryland and avoid the District.  Wealthier District residents, who rely less on public transportation, are inconvenienced less by commuting to the suburbs to shop.  Working class District residents will find it much less convenient and much more expensive to commute to the suburbs to work as a cashier or retail salesperson or shop at a discount store.

The ordinance will keep big box retailers from locating in the District and cause the few big box retailers already in D.C. to leave for the suburbs.  Washington, D.C. has 230 convenience stores and 173 liquor stores but only one big box discount department store.  The number and type of retail establishments in the District with at least 100 employees are listed below (These data are from the Census Bureau’s County Business Patterns and Zip Code Business patterns):

Retail Establishments With At Least 100 Employees in Washington, D.C.
Supermarkets	21
Non-discount Department Stores	2
Baked Goods	2
Electronics/Television	2
Discount Department Stores	1
Home Center	1
Computer	1

In contrast, Davidson County Tennessee (Nashville), with approximately the same population as Washington, D.C. has 22 supermarkets, 6 discount department stores and 5 non-discount department stores with at least 100 employees.    Nashville residents have many more options when it comes to shopping for discounts than D.C. residents.  The living wage ordinance will mean that District residents will continue to be deprived of discount shopping opportunities in their own neighborhoods.

Let’s hope that Mayor Gray has the courage to veto the living wage ordinance.  It is bad public policy that harms the working class residents of the District.

With Friends Like These …

Fewer than one in six African-American teenagers are employed.  Only 28 percent of African-Americans who have not completed high school are employed.  Faced with these historically low employment rates for young and minority workers, it would be cruel to require employers to pay 38% more per hour for unskilled labor.  Such a mandate would certainly drive teen and minority employment down even further.  Yet this is exactly the policy that Representative Jesse Jackson Jr. (D-IL) is advocating.

The demand curve for unskilled labor slopes down.  Mandating that workers are more expensive to hire does not make them more valuable or productive to employers.  In other words companies faced with a 38% increase in the cost per hour of unskilled labor will reduce their use of unskilled labor.  An increase in the minimum wage would harm the most vulnerable participants in the labor force.  The fact that the majority of Americans support an increase in the minimum wage reflects their economic illiteracy.  The fact that most liberal political commentators and journalists support a minimum wage increase is disturbing.   

An example of progressive pundits’ flawed reasoning is last Saturday’s edition of Up With Chris, when Amy Goodman, host of Democracy Now!, and host Chris Hayes had the following exchange:

GOODMAN: it would have been a wonderful truth for President Obama to offer yesterday … when he was speaking about the economy, let`s increase the minimum wage.  Very little coverage has been done of Jesse Jackson Jr.`s introduction of the bill for the minimum wage, that would mean it would go up to something like $10, which would bring it back to 1968…. He would have massive support.  I think something like, polls show, 70 percent of people would support it.

HAYES: I agree with you. I think we should raise the minimum wage. That would be a good net positive good for people.

President Obama is very unlikely to endorse a 38% increase in the minimum wage because he knows it will kill jobs and further weaken an already fragile economic recovery.  If prosperity was that easy to achieve through legislation Congress should mandate a minimum wage much higher than $10 per hour.

It is ironic that Alan Krueger, the head of the Council of Economic Advisors, is one of the academic economists who contributed most to the misinformation about the minimum wage.  His controversial and flawed academic research with David Card on the minimum wage has been misinterpreted.  A higher minimum wage doesn’t harm all workers or all firms. Workers who compete with unskilled labor may benefit by a large increase in the minimum wage.  Unskilled labor intensive firms are harmed but their more capital-intensive competitors may benefit from a higher minimum wage.  But Chris Hayes is 180 degrees from the truth; a minimum wage increase is a net negative bad for the economy.   More importantly the primary losers are the unskilled workers directly impacted by a minimum wage increase as their employment opportunities disappear.

A higher price mandate is not the kind of “help” that firms want from government.  Companies would lobby against legislation that would raise the price of their products and services by 38%.  The same logic applies to workers; a 38% increase in the cost of hiring unskilled workers will make it much harder for young and minority workers to find employment in an already weak job market.

Don’t Raise the Minimum Wage

The editors at Bloomberg View have called for an increase in the minimum wage.  Last week James Galbraith  repeated his proposal to raise the minimum wage to $12 per hour.  A large increase in the federally mandated wage would be devastating to less skilled and inexperienced workers.  Galbraith and the editors at Bloomberg View would like to see higher wages and incomes for workers at the bottom of the income distribution.  Merely requiring less educated and inexperienced workers to be more expensive makes a bad situation worse.  These workers would benefit instead from education and training that would make them more valuable to employers.

The nearly 40% increase in the minimum wage between 2007 and 2009, combined with the deep recession of 2008-2009, destroyed many jobs for younger workers.  The following chart compares the change in the percentage of the population that is employed, by age group, before and after the recession and minimum wage increases of 2007-2009.  Teen age workers had the biggest decline in employment relative to population, followed by workers age 20 to 24.  Fewer workers age 25 and above are directly impacted by the federal minimum wage of $7.25 per hour, and these workers were impacted less by the recession.

Galbraith’s proposal to raise the minimum wage to $12, or Senator Tom Harkin’s (D-Iowa), proposal to raise the federal minimum wage to $9.80 per hour by 2014, will make it much more difficult for new labor force entrants to find jobs.

Galbraith’s CNN op-ed, as well as his article in Foreign Policy, credits Ron Unz  of the American Conservative with the proposal for a $12 minimum wage.  Unz supports a policy that would reduce demand for immigrant labor, slow immigration from Mexico and Central America, and benefit conservative political candidates.  This is a cynical reason for supporting a federal mandate that will destroy jobs for the most economically vulnerable workers.  It mirrors the arguments in support of a federal minimum wage in the 1930’s made by Senators from higher wage Northern states.  Ron Unz knows that a $12 minimum wage will reduce the employment of Latinos just as Senators from New England knew that the FLSA would reduce employment in Southern factories.

It is understandable that politicians might support a minimum wage that reduces demand for less skilled workers but benefits their constituents and supporters.  It is more puzzling that Bloomberg View and economist James Galbraith support a policy that destroys job opportunities for workers still suffering from the 2008-2009 recession.

I Know What You Didn’t Do Last Summer: Find a Job

The unemployment rate for teenage workers is 23.2%, but that doesn’t fully describe the problems teens face finding summer and part-time jobs.  Employment fell sharply during the recession and no group was impacted as much as teenagers.  Summer employment of teens fell by 2.15 million, or 30%, between 2006 and 2011.  There is no indication that the youth labor market is about to improve; although overall employment increased by about 3 million over the past two years it has not increased for teens.

The following chart shows the teenage employment to population ratio over the past 25 summers.  Employment rates are reported separately for men and women and African Americans and Whites.  The employment to population ratio fell more for men and African Americans than for women and Whites.  In the summer of 2011 fewer than one in 6 African American teens and fewer than one in 3 White teens had summer jobs.

Traditionally, teen employment has been higher during the summer months than the school year.  The following chart shows that nearly half of White teens and one quarter of African American teens were employed during the school year as recently as 2000.  Since then employment rates have fallen dramatically, but more for men than for women.  In the fall of 2011 only 25% to 30% of White teens and 15% of African American teens were employed.

Teenage women are now slightly more likely to be employed than teenage men.  This means that young women are not only more likely than young men to complete high school and enroll in college, they are more likely to work while in high school.

Teen joblessness is an especially serious problem in poor areas and neighborhoods.  According to the American Community Survey the areas with the lowest teen employment rates include: northwestern Mississippi, the Bronx, parts of Louisiana ravaged by Hurricane Katrina, and the south side of Chicago.  A summer job, with an opportunity to acquire basic labor market skills, could be a valuable experience for the youth in these areas.

Teen employment has fallen steadily over the past 25 years and quite dramatically since 2006.  There is little doubt that the recession accelerated the decline in job opportunities for teens.  Although the FLSA allows a temporary sub-minimum wage for teens, it is also likely that the 40% increase in the minimum wage from 2007-2009 adversely affected the youth labor market.

High school seniors now graduate with less work experience than at any time since the Labor Department began tracking these data in 1948.  This would be less of a concern if high schools provided the vocational skills demanded in the 21^st century labor market.  The job market for new high school graduates is likely to lag the rest of the economy until graduates can acquire marketable skills while on-the-job and enrolled in school.

Two New NCAA Regulations That Will Improve College Football

Last month Tyler Cowen and Kevin Grier offered an explanation of the persistence of the college football bowl system.  They believe the BCS will continue despite the greater revenue generated by a championship tournament, because schools benefit from bowl game publicity and players gain from the bowl experience. The sparse attendance and low ratings of many lesser bowl games makes me skeptical of their publicity value. There are impediments to change, however, so here I propose two new regulations to ease the transition to a playoff system. First, allow non-bowl teams to hold practices until a national champion has been crowned and second, require teams to evenly split gate receipts for regular season non-conference games.

Practice times and player contact is restricted by the NCAA during the off-season. An important non-financial gain from bowl participation, especially for younger teams with more returning players, is the ability to schedule additional practices. If all teams were allowed the same practice time, regardless of their bowl status, teams would be less interested in participating in minor bowl games.

Defenders of the status quo argue that the bowl system makes college football’s regular season the most compelling in sports; one loss could eliminate a team from BCS title consideration. The status quo also encourages many boring September games because Athletic Directors rationally schedule very weak non-conference opponents. The past 12 participants in the BCS championship game played 45 non-conference games. Two thirds of their opponents were not ranked in the top 80 teams, and one of three was outside the top 125 teams in the country. The implication is clear: to improve chances of advancing to the BCS title game a team should schedule 2/3 of nonconference games against vastly overmatched opponents.

The NCAA encourages non-conference mismatches by allowing a team to keep all gate receipts after paying a nominal fee to a weak opponent to come to its campus. The NCAA should require gate receipts to be split evenly with the visiting team (as in the NFL) for all non-conference games. This simple rule would reduce the financial return to scheduling weak opponents. Teams would also take more scheduling risks with a 16 team playoff because a single loss would not end a team’s title hopes.

Many of the 35 bowl games that are played each year would be interesting inter-conference match-ups if they were played in September and replaced the annual parade of lopsided games. Television revenue would be enhanced by the promise of more and better early non-conference games.

I prefer a 16 team tournament that culminates with a game between the last two surviving teams, whether or not they are the “best” teams in the country. Sports contests are entertaining because upsets are possible and outcomes are uncertain. March Madness would be far less compelling if the selection committee chose the country’s 4 highest seeded teams as the Final Four and replaced the rest of the tournament with 60 meaningless basketball “bowl” games.

The rules changes I have proposed are sensible even with a bowl system. First, colleges and universities would be treated uniformly with respect to gate receipts and practice times, whether or not they are football powers. Second, powerful teams would be discouraged from scheduling games against vastly weaker opponents which should result in better non-conference regular season games.

Answering Tim Harford on the Minimum Wage

In Saturday’s Financial Times Tim Harford asks the question “Can the Minimum Wage Create Jobs?”  The simple answer is yes, but not as many as it destroys. Any policy has winners and losers and the minimum wage is no exception. The losers are young and unskilled workers who become more expensive but no more productive to prospective employers. The winners include semi-skilled workers who compete with minimum wage workers and producers of the capital equipment that companies use to economize on unskilled labor. Crony capitalism is not limited to tax breaks, subsidies and bailouts; the minimum wage can also benefit unions threatened by cheaper non-union workers.

Harford cites the “amazing” and controversial Card and Krueger study which showed that a higher minimum wage didn’t reduce employment in fast food restaurants in New Jersey. Putting aside possible problems with their data discussed by other economists, Card and Krueger looked for job losses at restaurants with the least labor intensive food preparation methods in the history of mankind. (e.g. most have outsourced the task of filling cups with ice and soft drinks to their customers to save labor costs). A higher minimum wage raises the relative cost and price of made-to-order sandwiches in labor intensive competitors and may actually increase demand at fast-food restaurants. The Card and Krueger study says nothing about how a higher minimum wage affects the aggregate employment of unskilled labor.

Harford correctly notes that minimum wage laws attempt to treat a symptom of a larger problem. The real problem is that many young workers lack the skills that employers demand. Unfortunately the minimum wage makes it more difficult for young adults to acquire vocational skills because it makes on-the-job training programs less viable. Companies will provide general training only if workers “pay” for it through a lower wage because a company loses its investment when trained workers (who received full pay) leave. The minimum wage limits the ability of young workers to “pay” for on-the-job training and apprenticeships. This is especially costly if vocational and for-profit schools are ineffective alternatives for developing marketable skills.