Insights
Minimum wage levels have been the subject of much debate among economists and policymakers. On one hand, there is a strong ethical imperative to ensure that working people can earn a living wage, as well as a suspicion that government services subsidise employers’ cheap labour. On the other is the concern that employers will respond to a required minimum wage by cutting low-wage positions altogether, putting more people already living on the edge out of work. It is a tricky balancing act. My heart says set a strong minimum wage, my head wants to be sure it works. And that is ignoring the geography issues raised by a national minimum wage that does not take into account the difference in the cost of living between cities.
The City of Seattle has grasped the nettle and is grappling with the two conflating issues of living standards and potential job losses.
The city has taken advantage of its high employment and wages and legislated for a very high minimum wage – $15 per hour. For comparison, the federal minimum in the US is less than half that (this is a nice summary of different rates around the country) and the UK minimum wage is just under $10 (£7.50). London’s living wage is about $12.60.
The benefits will be felt not only by low wage workers (although arguments about that have been and will continue to occupy economists), but by the policy-making community around the world as well. The city has not only opted to raise the minimum wage, but to use robust evaluation to monitor how it works. Their well-funded, timely, and high profile evaluation means that lessons can be taken from Seattle and considered by the wider policy community as it continues to grapple with and debate the pros and cons of differing wage levels.
So how has Seattle gone about their minimum wage experiment, and what makes it helpful?
- They have set aside funding for evaluation and contracted with the University of Washington to undertake the work.
- They have provided data to the evaluation on hours and wages of those workers most affected on a quarterly basis.
- They have phased the raise through a number of levels allowing businesses to plan for the increase, while providing a perfect opportunity to test whether there is a threshold above which job numbers are significantly affected.
- They are able to report in a timely fashion on the impact, allowing other places to respond to the current pressures to raise their minimum wages by using fresh evidence. In this case the evidence is actually keeping up with the political cycle, making it much more useful.
Seattle policymakers have gone with their hearts telling them to do something to help the working poor, while listening to their heads and addressing the need to know whether the policy is having the desired effect. All of the best intentions are of no use if too many people are driven out of work by a high minimum wage. Governments averse to evaluating their policies because of the risk of public failure should look to this example of scrutiny and be emboldened to experiment and evaluate.
We know however, that for the UK there is a further challenge. Minimum wages are set at the national level here, despite huge differences in the cost of living around the country. Seattle, as in other US cities, has the power to set its minimum wage. It is a high employment, and high wage city with a strong political will to support its working poor. We have approached a version of this with the London Living Wage, and other UK cities are developing policies as well, but we still need to understand what a national living wage does in different labour markets.
Naomi Clayton’s analysis of the proposed national living wages during the recent general election illustrates the variation in impact when it is raised to a particularly high level (as in the Labour scenario). Even the more moderate Conservative scenario will mean a raise for one in seven employees in Doncaster, while in Oxford only one in forty would expect an increase.
So while the UK will be watching what happens in Seattle, particularly on the question of job cuts, the geography question will remain unanswered for us.
While we would not necessarily advocate for minimum wage levels to be set at the city level in the UK, we would definitely want to reflect on the rigour with which Seattle has experimented with their minimum wage policy, the staged approach they have taken, and the monitoring of its effects. We would hope to see similar evaluation take place as and when minimum wages are raised here to further our knowledge around its impact. Most pressingly, any evaluation we do here must look at how its impact in different places varies – for example if the vast majority of workers in one city find themselves on the same, low, wage, while the increase has virtually no effect on living standards in another?
Seattle’s experiment is likely to take us much further in the minimum wage debate, but back in the UK more can and should be done to get to grips with some of the more localised specifics.
This piece originally appeared on the Centre for Cities blog
