Virgin on Business: Studies in Confusion

Determining the actual impact of a rising minimum wage isn’t that easy.
| FROM THE PRINT EDITION |
 
 
 
If you printed out all the studies purporting to show higher minimum wages as a job destroyer or the opposite, you’d have the raw materials for a duplicate Great Wall of China, if you’re in the market for a knock-off tourist attraction.  What you likely wouldn’t have is a conclusion, either to the studies or the larger debate.  More of that raw material will be generated as Seattle, Tacoma and the state of Washington all implement minimum-wage increases in 2017. Further rounds of increases in coming years will prompt still more dueling studies.
 
Those won’t produce a conclusive finding any more than the previous hundreds did. To figure out what sorts of impacts to expect, we’ll have to rely not on data but on a lot of observational and anecdotal information, mixed in with large helpings of logical deductions and critical thinking.
 
What we come up with is this: Increases to the minimum wage will have definite impacts on the job market, and not to the good, but in ways that may never show up in ways that can be captured cleanly and clearly in a data table.
 
The reasons are multiple and varied. Higher minimum wages aren’t hitting their targets — $12 for Tacoma, $13.50 for the state, $15 in Seattle — right away. For each of those precincts, there’s a phase-in period (Seattle’s is the most convoluted, determined by size of firm and medical benefits provided).
 
That reality will give companies time to figure out how to absorb the increased costs. And they will do something. They’ll close, move, pass on the hikes (if they’re in a business that affords them some pricing flexibility) and trim hours that don’t provide sufficient return (a restaurant might choose to drop Monday lunch).
 
Those businesses that can afford to and have a place to apply it will take a close look at automation technology, which is getting more powerful and cheaper by the day. Amazon’s experiment with a checkout-stand-free convenience store may be a part of that company’s broader strategy to have a presence in every form of retailing, but it’s also one piece of a broader trend by all types of businesses to cut costs. Every retailer of size is going to monitor Amazon Go’s performance. If it works, they’ll have their own version in months, if they’re not already at work on it.
 
That change, in turn, will fuel another broad trend: the decline of the entry-level job, the kind in which millions of people got their first real-world lessons on what it takes to get and keep a job, and pick up experience and skills for the next. If companies are expected to pay higher minimums, then they’re going to expect job applicants to walk in the door with more experience and expertise, and to produce more once they’re hired.
 
Higher minimum wages will also result in jobs that never show up to begin with because they were created somewhere else. Quick quiz: What’s the state minimum wage for Idaho and Utah, two states with which Washington competes in sectors like locations for manufacturing plant? Trick question. Neither has a state-mandated minimum wage, relying instead on the federal standard, currently $7.25 an hour. Between real estate costs and taxes, the Puget Sound region is already an expensive place to operate. Outsize minimum-wage increases — and their impacts on other costs and wages — provide one more disincentive to investment.
 
The multiple options companies have in dealing with the added cost of minimum-wage increases will obscure the impact. Locally, so will the reality-distortion field of the tech industry, whose pay levels and job generation tend to swamp what’s going on elsewhere in the economy.
 
Employment impacts of higher minimum wages are real, even if they’re hard to spot. As long as states and counties keep enacting one, they’ll be getting the other. And studies. Lots and lots of studies. 
 
Monthly columnist BILL VIRGIN is the founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.
 

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