The Seattle Minimum Wage Study with Ekaterina Jardim

Episode Summary

Executive Summary: The episode examines Seattle’s city-funded minimum wage study with Ekaterina Jarjim, focusing on how new administrative payroll data lets researchers directly measure hourly wages and hours worked. The study finds modest effects at $11/hour but substantial negative employment and earnings effects at the $14/hour phase-in, challenging prior literature that relied on proxies like restaurants or teenagers and often found little disemployment.

Main Topics: Origin and scope of the Seattle minimum wage study (Priority: 5/5): Jarjim explains that Seattle commissioned a multi-year research project after adopting the $15 minimum wage, with funding from the city and foundations, and that the project studies labor markets, employers, workers, and welfare effects. State of the minimum wage literature (Priority: 5/5): The discussion traces the debate from pre-1990s consensus on job losses to Card and Krueger’s influential work and the subsequent empirical struggle to identify clean treatment and control groups using difference-in-differences. Unique Washington payroll data (Priority: 5/5): The study uses confidential unemployment-insurance payroll records that include both earnings and hours worked, allowing direct observation of hourly wages and accurate identification of affected low-wage workers. Why proxy-based studies may miss effects (Priority: 4/5): Jarjim argues that earlier research using industry or demographic proxies such as restaurants or teenagers could dilute effects because those groups include many workers not actually affected by the wage floor. Methodology: difference-in-differences and synthetic control (Priority: 4/5): The project compares Seattle to surrounding regions and synthetic controls built from pre-treatment trends, aiming to avoid bias from choosing an arbitrary control group and to match Seattle’s unusually strong pre-policy growth. Findings on wages, hours, and labor-market adjustment (Priority: 5/5): The study reports small impacts at lower wage levels but a sharp decline in hours and a net earnings loss for low-wage workers once the minimum rose to $14, suggesting labor demand contraction rather than full wage pass-through. Future research and broader policy implications (Priority: 4/5): Upcoming work will track workers and firms over time, study redistribution across worker types and business types, and place minimum wage policy in the larger debate over inequality and alternative anti-poverty tools.

Key Arguments: Minimum wage research is hard because policy is not randomly assigned, so credible estimates depend on finding comparable control regions and satisfying parallel-trends assumptions. Seattle’s administrative data is unusually strong because it records both hours and earnings for essentially all W-2 workers, letting researchers identify who is truly near the minimum wage. Studies based on industries or broad demographic groups can obscure effects because many workers in those groups are not actually affected by the policy. The study finds that when Seattle’s minimum wage rose to $11/hour, the labor market largely absorbed it with modest employment effects and little earnings change. When the minimum wage rose to $14/hour for large employers, the study finds a much larger contraction: fewer low-wage jobs and lower total earnings for low-wage workers. Synthetic control is valuable because it reduces researcher discretion in selecting a control group and better matches Seattle’s pre-treatment growth than a standard difference-in-differences comparison. The effects of minimum wage likely depend on local conditions such as Seattle’s strong labor market, housing market, and the mix of industries and firms in the city. The policy debate should focus not only on jobs but on welfare, inequality, worker turnover, firm adjustment, and whether alternative policies might better support low-income households.

Data Points: Seattle minimum wage law passed: June 2014 - Seattle City Council voted to raise the minimum wage as part of the $15 movement. Large-firm phase-in to $15: 2017 - The law raised minimum wage for large firms earlier than for small firms. Small-firm phase-in to $15: 2021 - Small firms were scheduled to reach $15/hour later under the Seattle law. Employer survey sample: 500 employers - Researchers surveyed Seattle and outside-Seattle employers about how they responded to minimum wage. Worker interview sample: 50 interviews - The project conducted interviews with workers to understand family adjustment. Pre-treatment data window: 9 years (2005-2014) - Synthetic control used nine years of pre-law data to match Seattle’s trend. Worker coverage in analysis: 62% of workers - The study retained single-site firms, which still covered a majority of workers. Share of workers at multi-location firms: about 40% - The transcript notes multi-location firms employ about 40% of workers in Washington state. Low-wage job impact at $14/hour phase-in: 9% decrease in hours worked - For jobs paying less than $19/hour, hours fell after the large-firm increase to $14/hour. Wage impact at $14/hour phase-in: 3% increase in hourly compensation - Hourly pay rose, but not enough to offset the drop in hours for low-wage jobs. Implied elasticity: -3 - A 1% increase in wage rates corresponded to roughly a 3% decrease in hours worked. Effect at $11/hour phase-in: modest decrease in employment opportunities and essentially no effect on earnings - Earlier Seattle increase was mostly absorbed by the labor market. Wage range analyzed: roughly $14/hour to $40/hour - The study examined effects across bins of hourly earnings, not just workers below the minimum. State minimum wage change in Washington: from $9.47 to $11 an hour - Washington state later raised its minimum wage in 2017, complicating future analysis.

Pivotal Quotes: "we can really see hourly compensation for each worker" — Ekaterina Jarjim: Explaining why Washington payroll data is unusually valuable for minimum wage research. "what we see is that when minimum wage went up to $11 an hour in Seattle, it was largely absorbed by Seattle labor market" — Ekaterina Jarjim: Summarizing the smaller effects of the earlier phase-in. "we see that the number of jobs which are being destroyed are not being replaced by jobs which pay slightly more at the same rate" — Ekaterina Jarjim: Describing the stronger negative effects when the minimum wage reached $14/hour.

Implications: The episode suggests minimum wage effects depend heavily on local context and measurement quality. Better data may reveal stronger job and earnings losses than older proxy-based studies, and future policy debates should compare minimum wage with other anti-poverty tools.