Employer Responses to a City-Level Minimum Wage Mandate: Early Evidence from Seattle

Abstract

A growing number of cities and counties have recently raised their minimum wages. How employers respond to these mandates provides insight into the impact such policies might have on workers and local labor market. Drawing on two survey waves tracking initial responses to Seattle’s $15 Minimum Wage Ordinance by 439 employers with low-wage workers, we show how employers adjusted to higher wages. Most commonly, firms raised prices (56% reported this); smaller percentages reduced employee headcount or hours, limited internal wage progression, or took other measures. Single-site Seattle employers responded similarly to those with multiple sites. Food and accommodation sector employers were more likely to raise prices than firms in other sectors. Relative to other ownership structures, franchises disproportionately reported reducing their workforces. Very few employers reported withdrawing from Seattle. Overall, initial employer responses to this city-level minimum wage law align with predictions from the literature, findings that highlight trade-offs that policy makers must consider in future local wage regulation.

Payroll, Revenue, and Labor Demand Effects of the Minimum Wage

“…This threshold corresponds to $13.20-$14.50 per hour for the $11 minimum wage and to $15.60-$16.25 per hour for the $13 minimum wage. Moreover, our findings on the extent of the ripple effect are also consistent with employer-reported adjustments to the minimum wage in Seattle documented inRomich et al (2019). Among the respondents in the Survey of Seattle's Employers, 50 percent of businesses said that they raised employees' pay to decompress wages in the range of $13-$15/hour, and 30 percent of businesses said that they raised pay of employees in the range of $15/hour and higher.…”

“…We estimate that employers raised wages of workers paid up to 130 percent of the minimum wage to decompress the wage distribution. This result is echoed by self-reported responses on adjustment channels collected through the Survey of Seattle's Employers (Romich et al, 2019). Second, the minimum wage increased the labor costs of surviving firms by 1.2 percent and labor costs of all businesses by 0.57 percent.…”

Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle

“…A one-year follow-up survey revealed that multi-location employers were more likely to report an actual reduction in full-time and part-time employees, with over half of multi-site respondents reporting a reduction in full-time employment (52%, against 45% for single-site firms). SeeRomich et al (2017) for details on employer survey methodology.24 The basic impression conveyed by this figure is confirmed by synthetic control regression analysis, which finds no significant impact of the Ordinance on the probability that a low-wage individual employed at a locatable Seattle business in a baseline quarter is employed in the non-locatable sector anywhere in Washington State one year later.…”

“…There are possible exceptions in the right hand panels, particularly a spike in hours worked at $15 per hour. Although the $15 minimum wage was not introduced for any business until 2017, both business owners and workers commonly misperceived that Seattle's law mandated a $15 minimum upon adoption (Romich et al 2017).…”

The Oregon Earned Income Credit’s Impact on Child Poverty

“…In 2016, Oregon passed a minimum wage increase that will see the hourly wage increase from $9.25 to $14.75 in 2022. (Although, early evidence from the Seattle Minimum Wage study shows potential adverse employment effects when the minimum wage increase is implemented quickly [37][38][39]. Last, the Working Family Household and Dependent Care Credit (WFHDC) helps low-to moderate-income families pay for the care of their dependents while they're working or looking for work [40].…”