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Thursday, January 28, 2016

DC Minimum Wage Goes Up, Jobs Vanish

Service job growth went from 2.2% to -0.1%

The road to unemployment is paved with good intentions.

Washington, D.C.’s first installment of its minimum wage increase, from $8.25 to $9.50, which took effect in July 2014, came at a cost of approximately 2,400 service-sector jobs in the following twelve months. If Washington’s voters pass the $15 minimum wage that is on the ballot in November, it is likely that a total of up to 13,300 jobs would be lost.

Two years ago, then-Mayor Vincent Gray signed into law a minimum wage increase in the District of Columbia, raising the city’s wage floor by 39 percent in three installments. The first took effect in July 2014, while the second (to $10.50) occurred in 2015. The third to $11.50, is slated for this summer. Bureau of Labor Statistics data has already demonstrated the negative consequences of the first stage.

While higher minimum wages raise the incomes of some workers, they also lower employment by making it more expensive for businesses to hire people, particularly the young and unskilled. This is exactly what happened in the nation’s capital.

In the twelve-month period following the first D.C. minimum wage increase, employment in the District’s leisure and hospitality sector shrank by 0.1 percent, or approximately 100 jobs. The leisure and hospitality sector includes hotel and restaurant workers, who are particularly susceptible to minimum wage increases.

This 100-job loss, however, does not tell the whole story. Research on the minimum wage suggests that most of the harmful effects happen because of a reduction in job growth, not outright job losses. In other words, instead of laying off workers, businesses will open slower and close faster.

This phenomenon disguises many of the minimum wage’s effects, since many of the jobs that are “lost” are jobs that never were. Therefore, a complete examination of the D.C. minimum wage increase requires us to make comparisons.

In the year-long period after the first wage increase, employment in all other District industries grew by 1.9 percent. Jobs in higher-wage industries, where the minimum wage is less relevant, thus dramatically outpaced those in the leisure and hospitality sector, where growth was negative 0.1 percent.

That is not the only comparison worth considering. In the 12 months before D.C. raised its minimum wage, jobs in the leisure and hospitality sector grew at a healthy rate of 2.2 percent. After the city government raised the minimum wage, employment growth in this sector turned negative.

By comparing the change in rates of job growth before and after the wage increase in all other industries to the change in the affected leisure and hospitality sector, we can estimate how many leisure and hospitality jobs were eliminated by the minimum wage increase.

The higher minimum wage reduced employment growth in the District’s leisure and hospitality sector by 3.5 percentage points, according to this comparison. This represents a loss of 2,400 jobs. This is only for the first of three wage increases. Had the District’s minimum wage gone up to $15, a measure that is on the ballot in November, the loss would have been 13,300 jobs.

While this method only produces an estimate — there are many reasons why the actual number could be higher or lower — it should make policymakers pause before they consider raising the minimum wage again.

These estimated job losses are 24 times what we see by just looking at the raw numbers, which underscores the importance of comparing what is to what might have been. The minimum wage is no exception when it comes to the unintended consequences of policy. Lawmakers — especially those who want to raise the minimum wage to $15 — should remember this.

This article first appeared at CapX.