This is kind of a black-box kind of methodology. They're going to get back into school: 'So, they don't make any summer money. As for your slavery business model, the northern states that did not use slave labor had more economic success than the southern states and to this day are in better economic shape than those which depended on forced labor. And eventually will be also in Seattle. … Jacob Vigdor: You know, the long-run effects are really important, but the challenge with the long-run effects is that the methods that we use for this kind of analysis are really inadequate to try to pick them out. But I came up with a little idea of how to overcome that “little problem”. Correct? So, I'm a--maybe I've been out of the labor force, or maybe I've just turned, I've just left school. You are ascribing an awful lot if stuff to me simply on the basis that I find the minimum wage to be on net a bad thing. In fact, a lot of the chefs and restaurant general managers began their careers as low-income workers. In the segment of the labor market with hourly wages under $19, we saw a 3% increase in hourly wages. So, the Mayor of Seattle at the time, Ed Murray, decided to get some labor groups and some business groups in a room together and kind of hash out a deal to figure out what kind of policy to put into place to raise the minimum wage to $15 an hour. The lower wages on average should have been a boom for the existing businesses in Detroit. And America's era of rapid immigration from Mexico coincided with demographic patterns in Mexico that involved high birth rates, low mortality rates, and big population growth. So let’s take a first principles approach to this podcast. So, I talked a little bit about the synthetic control methodology that we used, which is basically picking out other regions of Washington State that have a good track record of matching employment trends in Seattle. Many Seattle storefronts and businesses in recent years have face triple rent increases when older leases expired. And so the interesting part of that conversation was, I sat down with this CEO of the Washington Restaurant Association, and the first thing he said to me is, 'We're going to be fine. Political operative doesn’t care if the long run comes quickly: Jacob Vigdor: I had a political operative from the Seattle Mayor’s office come visit me a couple of years ago. And I checked relative prices of transportation, and transportation isn’t much more costly: bicycles are much cheaper, small mopeds and scooters cheaper, small econoboxes about the same real price. And so--. And unpaid internships. Vigdor along with others from the Evans School of Public Policy and Governance have tried to measure the change in employment, hours worked, and wages for low-skilled workers in Seattle. I think “price fixing” has to be precisely defined before you talk about price fixing. From the employer's perspective, that's a riskier proposition. And, I responded by saying, 'Look, that's not my job. We were trying to commit ourselves to writing down a specification before we conducted the analysis. Particularly back in the summer of 2016, when we released our first major report on impacts, it was interesting, because there were a few studies that came out right away that were carefully written, where the reporters had taken the time to talk to the authors about the study. To wit, supply and demand does apply to labor markets, even at the low end. What's the big deal? . So, we’re moving away from full service. Thanks Russ. So globally there is always a chronic shortage of jobs, and this distorts the market and drives down wages. This proves what I knew all along.' But the general pattern is that employers are emphasizing experience. This was just the data talking. Russ Roberts: So, when you say 3% you mean for the people you expect to be affected or overall the whole population? Our data set allows us to do that. Let's get together and figure something out.' So, if you are imagining a restaurant where you go, you sit down, someone comes to take your order--that person is on the clock; you have someone delivering your food--that person is on the clock; you have someone bussing your table--their hours are on the clock. Jacob Vigdor: So the natural moves up the ladder are the saving grace. And that's what increases our confidence that what we are observing is the impact of the minimum wage. Russ Roberts: And that's consistent with other work I think that's been done out of--is it Texas A&M? Extremely thoughtful discussion of minimum wage issues. With all three I was prompted with the same nagging thought. Russ Roberts: And, you won that bid, presumably. No one said it is perfect but then incentives are intended to be unpleasant. Yeah. And some didn't. But once you become a business owner then you stop reporting your earnings to the UI[?] Jacob Vigdor: And he proceeded to tick off about 8 different specific business strategies that a restaurant owner can use to cut back on their use of low-wage labor. Jacob Vigdor: That's right. The restaurant association was saying that demand was pretty elastic and that’s what this study showed. Well, you could make a little money or a lot of money. And, in fact, the work that we've done suggests that a lot of the impact of the wage policy has been not necessarily affecting people who already had jobs, but it's reducing the rate at which new workers enter the labor market. Let's start with some history. So, basically, what we're coming up with and the revised estimates that we've put together suggest that wages went up about 3%, as a result of the minimum wage increase; but then hours were down about 6 or 7%. More of them cross the cut-off out of our definition of the “lower paid” category, leaving fewer jobs in that “low paid” category. And now they are just--what? I'm not an advocate. As we still teach introductory students in Econ 101, a price floor on low-skilled labor will (at least in ... Yglesias's Reasonably Strong Case for Way More Immigration. And then the response is, 'Well, then I quit.' So, there might be a tendency for them to witness a reduction in hours; but the fact that you were at least on the bottom rung at the time that the bottom rung was eliminated, you've got some possibility that you managed to stay with the organization and move up to the next rung. Why would that lower costs for a business that only employed cheap, unskilled labor before they wealthier people left? . He says, “the gvt. They call out your number or your name when the food is ready, so you are the one transporting the food to your table. Why should government ensure businesses can charge charge high prices to low income customers who work? It seems Vigdor is trying “seg out” the general economic climate. Before one loosely tosses around the term “price fixing,” I think the meaning of the term “price fixing” needs to be pinned down . Russ asks pretty much all the right questions at all the right points. If it’s legal to pay near-zero, you can make a profit rousting up homeless people to be human furniture during South Hampton party events. You are getting rid of the lowest-paid worker in the establishment. But they don't need the money to survive. Russ Roberts: Yeah. Jacob Vigdor: Yeah. At $0.75/hr., they have to send their six year old kids to go work for $0.25/hr. The number of households earning minimum wage is a tiny fraction of the working population, suggesting that most low-wage work is pretty transient and eventually people matriculate to higher-paying jobs. (Epoxy sealed to keep out moisture that stops it working, not to prevent fixing it.) The minimum wage ordinance (Ordinance 124490), which when approved was the highest minimum wage in the country, provides for an increase in the minimum wage in the City of Seattle to $15 an hour, phased on over time. So, basically, here's the way you want to think about it. I sell low priced consumer products in a competitive space so these are the decisions I must make in order to stay in business. I think I see this in changes in WDC restaurants which seem more likely to be closed for late lunches or early dinners than previously. That's the best you can do. And people risk their lives to be able to be poor in America. There exists no limit to obnoxious business models that are able to be dreamed-up if near-zero wage levels are permissible. I mean, obviously--I don't know how hard that is to measure. In other words, should we try to force employers to have some skin-in-the-game when it comes to their employees? If you’re uncertain about that assertion, go have lunch at a Jack In The Box. And particularly amongst teenage workers, many of whom are just looking for a little bit of summer employment or just a few hours. So, it's possible that in the long run, businesses will find more ways to adapt. That’s how Evans School Professor Jacob Vigdor answered Dave Ross, when the longtime radio host asked if the recent minimum-wage increases had raised prices in Seattle. Or, 'Here's the [?] That is the subject of the research of Jacob Vigdor, the guest on this […] And so, if you are just counting up the number of jobs, it might look like it hasn’t changed very much. With the exception--just like every place else, Seattle's labor market shrank during the Recession--between 2007 and 2009 or so. When someone offers considerable research on the subject, and we choose to blather on with our own opposing viewpoint without offering anything but our foregone conclusions, we are indeed a bunch of arrogant buzzards. It's kind of at the vanguard of living wage, minimum wage legislation. On average they were taking home–not necessarily taking home, but their paychecks were reflecting an extra about $20 a week. A new insight (to me) is that labour-saving innovations in one location, triggered by strictly local conditions, will eventually spread elsewhere, then everywhere. What to do about those whose productivity, and ability to learn, is so low that they stay at the minimum wage for long is perhaps a question worth investigating. Jacob Vigdor: Yeah. Jacob Vigdor: Well, we tried a number of different methods to start out. The people who are falling behind are the people who would have been hired as the busboy in 2016 or 2017. So, typically, if you are a dishwasher in a restaurant kitchen, you are going to be using equipment; and if you have some familiarity with that equipment already, you don’t need to be trained. So, if you were a busboy in 2014--let's say, in February of 2014, so that minimum wage doesn't start going up until April--then you had at least some experience when the minimum wage starts going up. There is a lot of money here. But at the same time, the number of restaurants expands. I was a little confused by this. Especially when the minimum wage is continuing to increase. Are you able to tell that? So, it's a relatively small impact. Students are coddled and cajoled. In other words, people who do join the workforce near the bottom of the wage distribution all get a bit more than they would have before, and so some cross the threshold out of our “low” paid categorisation. And there are studies that will show you that there's not very much impact whatsoever. And discovered that restaurants with low Yelp reviews--meaning that they weren't very popular, or people didn't like them very much--they were more likely to go out of business after the minimum wage increase. Does anyone work for long at the minimum wage? Jacob Vigdor of the University of Washington talks with EconTalk host Russ Roberts about the impact of Seattle's minimum wage increases in recent years. Because in the health care industry you also have doctors and nurses and people who--you've also got custodial staff, cafeteria staff. So, suppose that you are going to a meeting, and you want to grab a coffee on the way to the meeting, but you don't want to wait in line and you really don't want for your cappuccino to be brewed. My hunch would be that the minimum wage and other tax/regulatory requirements  that make labor more expensive are devastating to small towns. That is, it doesn't respond much, the employment level. And so, it could very well be that in the long run, the treatment-versus-control difference in something like low-wage employment could actually dissipate. Does “price fixing” refer to a group of workers that manages to get organized to negotiate a contract with an employer for a stipulated wage? The upside, seemed to be wage increased (as we would expect). The less experienced workers who at least had a job to start with, were more or less breaking even: their increase in hourly wages was being pretty much offset by a reduction in hours. Vigdor noted in the podcast that busboys, for example, become more valuable very quickly and can then command higher wages. So, what does that number mean? It is the less experienced workers--the people who had a less of a wage history at the time minimum wage went up--that they are seeing hours reductions that exceed the average. Those places (many already struggling with unemployment) would be devastated by a $15/hr minimum wage. I’m confused by your argument. that is inescapable, you can get $4.5TR/yr. Russ Roberts: And you said above the table. So from these first principles observations, THE FOLLOWING would be my criticism of the podcast . But, as people have more time to respond to this situation in the restaurant industry and elsewhere--health care and so on--I'd expect the effects that are measured to be larger. The vision of the future of restaurants with higher minimum wages sounds exactly like what you already find in places where the lowest wages are higher. That's right. Russ Roberts: And in theory, in theory, Pete's--different coffee chain--could also adopt an app--I'm sure they have an app--which would in theory mean that in Idaho, that labor savings through competition might have to have to passed on to the consumer, in the form of a lower price of a cup of coffee. But when we looked at employment, we actually saw a reduction. And so these--using about 10 years' worth of data from before the minimum wage went into effect, we were matching the employment trends--the peaks and the valleys--over a period of time from about 2005 to 2014. Jacob Vigdor: Yeah. And that's sort of inflation-adjusted to 2015 dollars. So, it's a--the brunt is--it doesn't mean these innovations are going to mean more profit necessarily for the corporation. "That a branch of revisionist studies has arisen since the mid-1990s does not mean that the consensus has been reversed; it merely means that the prior consensus has been challenged." On average they were taking home--not necessarily taking home, but their paychecks were reflecting an extra about $20 a week. And you are trying to tease that out by comparing the growth in Seattle, where the minimum wage was passed, to areas where there isn't this increase in the minimum wage but they are "like Seattle." That, the demand for labor--or that, or those wage levels, is--a technical term, relatively inelastic. To hire someone who is young, doesn't necessarily have a work history, they are not necessarily going to be reliable. I actually moved to Seattle to take this job in July of 2014. And it started in a little town south of here called Sea-Tac. The way that we tried to do things was to keep our hands above the table, and what ends up being in the paper are a lot of appendix tables and figures and footnotes that describe some of these alternate specifications that we tried. It’s challenging to run a business that generates a profit consistently. You are the one bussing your table when you are done. Jacob Vigdor, study director for the University of Washington’s evaluation of the Seattle minimum wage. So, once a restaurant in Seattle figures out, 'Hey, I can save on labor costs by just having my customers bus their own dishes,' then, if that business practice filters out into other parts of the country, then our control groups start to see some reduction in employment as well. Which is [?] I worked several minimum wage jobs in my lifetime and survived. Nash considers this a “teachering moment” for the other graduate students, so what does he tell them? I’m guessing the reason wealth taxes failed is because the wealthy were able to reorganize differently or elsewhere. Of course, if Seattle is growing faster than that increase because of other underlying factors, it would still be hard to measure and tease out. (Although that family would likely have more than the one paycheck.) EITC does not go to low wage workers, but to households, ie consumers. They’re going to get back into school: ‘So, they don’t make any summer money. It's designed to sort of illuminate for you: 'Okay, these are the regions that really minimize the trend differences between Seattle and the control region.' This study confirms what many previous studies have shown. Russ Roberts: So, that's disturbing, to me. I think it is disingenuous to say that there was no impact to employment from the law without taking out the population growth. For example, it is MUCH more difficult for someone to create a business that generates a profit employing people than it is to create a person. Russ Roberts: I should say that the message--we are carefully--we are speeding up the rate at which people with low skills have to have a hard time. And, if a low-wage job all of a sudden has its wage increased, does that make it no longer a low-wage job? And, generally speaking, a family at these income levels won’t be paying income taxes. Does it make sense to create jobs with very low pay in an economy that is rather high cost? Russ Roberts: And for a full-time worker who didn't--well, some of those workers, of course, who got a wage increase, were able to keep the same hours, I assume. What’s the big deal?’. We used entirely different methodology called Interactive Fixed Effects, which showed largely the same results. And there are people who are, presumably, in 2019 able to be a bus boy, I would think, at $16 an hour--. Enter your email address to subscribe to our monthly newsletter: $15 minimum wage, Berkeley study, Jacob Vigdor, minimum wage, Seattle, substitution. The birth rates in Mexico have declined to the point where their population is stable. Thanks for this excellent interview. The idea that pricing teenagers/college-age students or workers out of the market is terribly short-sighted. And the reduction was actually a little bit larger in magnitude when we looked at hours worked rather than just simple head-count measures of employment. There’s no theoretical justification for it at all. So, our data came from Washington State. A couple of different studies. section below. The long-run trends around immigration are such that the number of immigrants to the United States has kind of stabilized. So, we looked at the scope of work that the City had put into this Request for Proposals. Are you going to continue to measure these changes going forward? These newly employed people drive most (all?) Jacob Vigdor: Most of--I mentioned a little while ago that we've been following 50 families, trying to make ends meet with low-wage work in Seattle. Some supporting anecdotal evidence: Whole Foods cuts workers’ hours after Amazon introduces minimum wage, I enjoyed the podcast. Namely that, overall restaurant employment shows no negative impact. Russ Roberts: Which is confusing. The movie did have some bright moments, though, and one was when Nash wins the competition for the MIT job. But you want to be asking a more nuanced question, which is, 'Are there job opportunities available for people in Seattle with no prior experience?' Question: Ekaterina Jardim, Jacob Vigdor, And Colleagues At The University Of Washington Concluded That When Seattle Raised Its Minimum Wage, The Effect Was To Lower "the Amount Paid To Workers In Low-wage Jobs By An Average Of $74 Per Month Per Job In 2016." How should I interpret that? This all sounds good to me. And then you wouldn't be able--you essentially wouldn't be controlling for differences between the two areas. He says to them, “you need to focus on general operating dynamics” — i.e., FIRST PRINCIPLES. Jacob Vigdor: Yeah. The BANK LOBBY would be the quickest route to the wealth tax if you constructed the wealth tax so it was the most profitable event in history for the global banking industry. 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