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Study: Seattle's minimum wage increase goes horribly wrong

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Several employers have reduced their payrolls and cut employee hours or the size of their staff. (AP Photo/Ted S. Warren, File)

Seattle's hotly-disputed $15-an-hour minimum wage law is reportedly hurting the exact people it was supposed to help.

Low-wage workers in Seattle have seen their earnings decline by an estimated $125 per month, according to a National Bureau of Economic Research working paper titled, "Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle."

That's an earnings decline of $1,500 per year.

Several employers have reduced their payrolls, the study reported, adding that others have cut employee hours or the size of their staff.

The city enacted the first phase of the Seattle Minimum Wage Ordinance in 2015, raising the minimum wage from $9.47 to $11 per hour. It enacted the second phase in 2016, which boosted the minimum to $13 per hour for larger employers. Its eventual plan is to see that amount boosted all the way to $15 per hour.

Though the first phase of the ordinance appears to have had only a moderate effect on low-wage earnings, the second phase of the law seems to have gone too far, according to University of Washington economists Ekaterina Jardim, Mark C. Long, Robert Plotnick, Emma van Inwegen, Jacob Vigdor and Hilary Wething.

"[W]e conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent," the wrote.

They added, "Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees' earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies."

Seattle is not the only U.S. city to have raised the minimum wage for its lowest-paid workers. However, it does have the distinction of being the city to enact the highest overall increase.

That increase, which has been implemented in stages, appears now to have gone too far, according to the research.

"The goal of this policy was to deliver higher incomes to people who were struggling to make ends meet in the city," one of the study's authors, University of Washington economist Jacob Vigdor, said. "You've got to watch out because at some point you run the risk of harming the people you set out to help."

Two important notes about the working paper: First, it has not yet been subjected to the peer review process. Secondly, it's worth mentioning that the study did not examine the effects of the wage increase on large employers with business in and outside Seattle. The study's authors explained they omitted these large businesses from their calculation so as to avoid confusion with businesses that are specifically beholden to the law.

MIT's David Autor, who was not involved in the new Seattle working paper, still said the new data doesn't look good for the nationwide push to increase the working minimum wage to $15 an hour.

"This is a ‘canary in the coal mine' moment," he told fivethirtyeight.com. "Nobody in their right mind would say that raising the minimum wage to $25 an hour would have no effect on employment."

He added, "The question is where is the point where it becomes relevant. And apparently in Seattle, it's around $13."