Seattle implemented the first phase of its minimum wage law on April 1, 2015, raising minimum wages from the statewide $9.47 to $10 or $11, depending upon business size, presence of tipped workers and employer provision of health insurance. The second phase began on January 1, 2016, further raising the minimum to four different levels, ranging from $10.50 to $13, again depending upon employer size, presence of tipped workers and provision of health insurance.
In a new CWED brief, my colleagues and I analyze county and city-level data for 2009 to 2016 on workers from the Quarterly Census of Employment and Wages and use the “synthetic control” method to rigorously identify the causal effects of Seattle’s minimum wage policy upon wages and employment. Our study focuses on the Seattle food services industry. This industry is an intense user of minimum wage workers; if wage and employment effects occur, they should be detectable in this industry.
We evaluate the causal effects of minimum wages on wages and employment by using synthetic control estimation. While we can observe wages and employment directly in Seattle, we cannot observe how wages and employment would have evolved if Seattle had not implemented its minimum wage policies. To evaluate the policy empirically, we estimate a counterfactual—what would have happened in a counterfactual or “Synthetic” Seattle, made up of a weighted average of donor countries, that did not raise their minimum wage standards. This is a machine driven procedure. More precisely, the synthetic control method estimates the counterfactual outcomes by constructing an optimally weighted average of counties in non-treated areas that track pay and employment trends in pre-treatment Seattle. See the CWED Brief for more details.
As is evident in Figure 1, wages in affected industries increased. Especially in the lower paying LSR sector. The increases are statistically significant except in FSR-likely due to the introduction of a tip credit. This tells us that we are indeed analyzing an affected workforce, and the policy did as intended.
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