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December 6, 2013 at 2:02 PM

What state treasurer Jim McIntire’s study says about a $15 minimum wage

Jim McIntire, State Treasurer

James McIntire, State Treasurer

What is the likely effect of the rise in the minimum wage in SeaTac to $15, or some other increase? I was cleaning out my paper files preparatory to retirement, and under “Minimum Wage” was a study dated January 1991 from the University of Washington’s Northwest Policy Center. The principal investigator was James McIntire, who is now Washington state treasurer, the official responsible for floating state bond issues on Wall Street.

The study’s aim was to judge the effect of a 1968 state ballot measure that increased Washington’s minimum wage in two steps to $4.25 ($7.59 in today’s money) by January 1990. The effective minimum in Washington for most workers had been the federal minimum of $3.35.

This was a 27 percent increase over two years, which was fairly big, but less than half the 63 percent increase between the 2013 state minimum of $9.19 and the 2014 SeaTac minimum of $15.

In its study, McIntire’s team surveyed more than 1,000 employers and interviewed more than 500 affected employees. It also looked at state Employment Security data.

More than 100,000 employees got wage increases in 1989 and 1990 because of the rise in Washington’s legal minimum. Over two years, employers reported laying off 11,700 workers “as a result of the minimum wage increases.” Employees reported about the same number.

In other words, for every 10 workers who got a raise under the law, one worker somewhere was laid off. The most-affected employers were restaurants and bars (the law also eliminated the tip credit), particularly in the lower-wage parts of the state.

The job-killing effect of raising the minimum wage has been controversial. Twenty years ago economists David Card and Alan Krueger published a famous study comparing fast-food jobs in New Jersey and Pennsylvania, after New Jersey raised its minimum wage and Pennsylvania didn’t.  Said Card and Krueger: “We find no indication that the rise in the minimum wage reduced employment.” Card and Krueger have been cited by the pro-labor side ever since, often by Democrats.

McIntire is also a Democrat, and supports a minimum wage as “a social judgment” about the rewards to work. “Indexing is useful to keep it from becoming a political football,” he says. But he is wary of taking too much from the Card-Krueger study. He says it was a mistake for them to limit it to fast food, because if you raise costs for restaurants and menu prices go up in mid-price restaurants, fast food may gain. Card-Krueger was “a rather flawed study,” he says.

McIntire says the effect of a minimum-wage increase on jobs depends on how big the increase is — and a $15 wage would be a very big one. “Significant increases do have negative consequences,” he says.

“Significant” does not mean every employer. Of all employers surveyed in McIntire’s 1991 study, about 20 percent said they were strongly affected by the change in the law. They either raised prices, cut an expansion plan, cut employee hours or laid off employees. Most common was “a readjustment of hiring and personnel procedures” such as screening more job applicants to make sure they were properly trained. McIntire remembers that of employers that did lay people off, half rehired new employees to take their places.

The new ones, he said, “tended to be a bit older.” Having to pay them more, the employers spent more money to screen them and more to train them.

Comments | Topics: minimum wage

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