Seattle Minimum Wage Study (Part 3): Tell Me Why I’m Wrong, Please!

Previously: On the Seattle Minimum Wage Study (part 1)On the Seattle Minimum Wage Study (part 2)

To summarize the finding of my previous two part analysis:

There was a study of the recent raising of the Seattle minimum wage and its effects on low wage workers. Everyone who wrote about the paper thought that it showed that the rise in the minimum wage severely hurt the hours and pay of lower wage workers, or thought it was a bad study and should be ignored.

The numbers seemed odd to me, so I took a closer look. I found what appears to me to be a fundamental error. During this period, overall wages in Seattle rose by 13.3%. If you raise the threshold for ‘low-wage worker’ by 13.3% between the two time periods, all bad effects from the minimum wage disappear, it looks like nothing bad happened, and low wage workers likely benefited. It also presumably didn’t hurt Seattle much, since it was booming the whole time.

If anything, the study seems to be providing evidence that, at least in some situations, raising the minimum wage is good, rather than it being bad. It’s still weak evidence, because Seattle was unusually well situated to handle the change, but it seems important. It also seems like a lot of people have a strong interest in shouting this result from the rooftops, if true.

Several hundred people saw the posts in question, and I got two good detailed comments, both of which essentially agreed with the analysis.

No one told me where I went wrong.

So while I work on harder, more substantive posts that I’m a bit stuck on at the moment, I’m going to ask: If no one’s going to start shouting the result from the rooftops, can someone please explain why I’m wrong here?


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5 Responses to Seattle Minimum Wage Study (Part 3): Tell Me Why I’m Wrong, Please!

  1. raemon777 says:

    Which people do you expect should be shouting it from the rooftops? Do they read your blog? (My sense is that those people would be people already predisposed to think Minimum Wage is good and be emotionally prepared to take action on that, and those people seem less likely to read your blog)

    • TheZvi says:

      My model would think that it would go people who read the blog alerting other people who would then run with the idea, and likely not credit me for it, and that would honestly be fine.

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  3. Quixote says:

    I suppose I don’t understand why you think you need to be told you are wrong. Your conclusion doesn’t seem that surprising to me, its what I would have expected, but to be honest I wouldn’t have been shocked by either result, the empirical results on min wage are messy enough that I think having any strong priors on the issue is probably an error. That said, my inclination is that you probably are not wrong and here are some reasons it seems reasonable to me.

    1) By and large empirical literature on the minimum wage points to it making much less of a difference than expected. Lots of studies have found minimal changes or even slight increases in employment. That’s a kind of weird result, but it’s also one that has popped up a lot to the point that we should ex ante expect that a properly done minimum wage study is going to look like the prior one and find minimal change or increases in employment.

    2) Anecdotally, employment levels across countries seems to track ease of hiring / firing rather than wage levels. How convincing this will be to you may vary based on how international your group of friends is, how often you travel, and how often you have had to try deal with HR in various countries. I’m not sure if this will (or even should) be convincing to a third party, but it is a factor in where my priors come from.

    3) Economics already had a framework to understand this. The efficiency wage framework has been around since at least the early 80s, so it’s not like something that people came up with after the fact to ad hoc rationalize these results. So it is not the case that this result is without theoretical foundation and should have us worrying that everything we know about econ is false.

    4) Given 3, effectively the minimum wage results taken collectively seem to show that maybe wages are below the efficient level. (although also maybe not, in general I think this is an area where we should have relatively low confidence priors and react to things by say “hunh that’s interesting” rather than with real shock or surprise). I will note that wages are very easy to measure and value created by employees is very hard to measure. While ideally an employer should care about “value created by employee” / wages, its not crazy to suspect that managers are minimizing a variable that’s easy to measure and track rather than maximizing a ratio that’s near impossible to measure.

    In conclusion, I think your confidence level in your priors (regardless of direction) was probably too high. Your prior for efficient markets was probably too strong, and your prior for “Goodhart’s law may have an influence here” was probably too low.

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