Jacob Vigdor on the Seattle Minimum Wage
Mar 4 2019

Seattle.jpg 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. 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. He summarizes those results here arguing that while some workers earned higher wages, some or all of the gains were offset by reductions in hours worked and a reduction in the rate of job creation especially for low-skilled workers.

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Explore audio highlights, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.

READER COMMENTS

Tom Coss
Mar 4 2019 at 1:57pm

Fascinating discussion.  Was there an effect upon local prices?

Scott Solomon
Mar 4 2019 at 2:01pm

The favorite excuse for restaurant owners who open restaurants that are so horrible business goes to near-zero is that the wages they have to pay are too high.

I know a guy in Saratoga Springs who only employed illegal immigrants at his restaurant, and even paying illegal workers less than minimum wage, his restaurant was still a failure.  The workers were paid such a low wage they lived 12 to a single bedroom apartment.

He used to post on Facebook all the time that cracking down on illegal immigration would hurt the restaurant industry.

OF COURSE the REAL reason his restaurant failed COULD NOT have possibly been that it was a completely horrible restaurant.

A. C.
Mar 6 2019 at 11:24am

So, how was the food and the service?

Seriously, how customers feel about these two things are the most common measures of whether a restaurant succeeds or not.  Service to customers is very closely tied to how the servers feel they are treated by employment.

Scott Solomon
Mar 4 2019 at 2:08pm

Suppose you have a bifurcated workforce:

1.)  Teenagers who don’t really need to work

2.)  Older people who need to support themselves and potentially their families.

With no minimum wage or a low minimum wage, the people in Group 2 would need to work more hours to support themselves.

With a higher minimum wage, they could possibly work fewer hours, so it should open up demand for the Group 1 guys.

Of course, you could completely eliminate the minimum wage with a 4%/yr. wealth tax that funds a $2TR/year not-for-profits-funding not-for-profit that funds people inventing their own not-for-profits, and it sucks so many people out of the for-profit workforce that wages increase from decreased supply of labor.

Ajit
Mar 4 2019 at 10:46pm

You are forgetting the supply effects from reducing minimum wages…is, leading to growth in job openings. Also, the bifurcate labor force is way too simplistic a view of low skill labor.  There isn’t this clean distinction of on the street starving low wage earners and children of hedge fund managers working at the local dairy Queen. In fact, a lot of the chefs and restaurant general managers began their careers as low-income workers. Making it harder for them to get a job ultimately hurts us and the economy as a whole.

I won’tgo into your second point completely, only to say that I wonder if you are underestimating the deleterious effects of a wealth tax. There’s a long and sorry history of the incentive effects of wealth taxes, something parts of Europe tried and had to hastily repeal back.

 

 

Scott Solomon
Mar 5 2019 at 7:39am

As someone who spent A LOT of time around hedge fund managers, I don’t think their children are working at the local DQ anymore.

They can intern for free in D.C. with lobbying groups advocating the evisceration of remaining social programs and go to parties with Grover Norquist.  Their parents will pay for them.  There even exists a web site on which the children of the wealthy can pay thousands of dollars to obtain unpaid internships.

I’m guessing the reason wealth taxes failed is because the wealthy were able to reorganize differently or elsewhere.

But I came up with a little idea of how to overcome that “little problem”.

Suppose you design a global wealth tax such that if the wealthy DO NOT pay with a bank loan, the wealth tax is (say) 3.7%/yr.

If they DO pay with a bank loan, the wealth tax is only 2.5%/yr.

What would be the result of such a design?

The wealthy would save the 120 bps on their wealth by taking the loan (which would mean billions in fees to the banks).

The banks would subsequently package the loans into Wealth Tax CLO Bonds (that would be nearly risk free since they were backed by the $100TR in wealth), receive A NEW SET OF FEES, and after a few years we’d see the advent of potentially a $12TR new fixed income market.

Supposedly the bank lobby is the most powerful lobby in D.C., no?

So for an addition $50BN+/yr. in profits, one would think the banks would be quite happy to ferociously push for a global wealth tax.

$50BN to the banks would be a small price to pay for (say) $4TR/yr. more to eradicate poverty, etc.

After 20 years of paying the wealth tax, the super rich would still be even more rich (for the most part).  If any of them dropped below $50MM or $30MM, they would stop getting taxed.

An additional condition would be the banks have to enforce against wealth tax avoidance.  They could hire away the tax departments of every top law firm and set them upon the super wealthy — scour every dark corner of the Earth to end all the tax avoidance schemes.

Ajit Kirpekar
Mar 5 2019 at 12:15pm

The children of hedge fund managers was intended hyperbole. I’m the son of a doctor and a software engineer and even myself and my brother worked part-time jobs at minimum wage.

 

On the subject of a global wealth tax, that’s something I could never imagine working in practice. It would require a massive coordination among all of the major countries… Including your Caribbean islands iand Irelandthat who areare purposely used as shells to avoid taxation. think about the states in the United States that have varying levels of income tax. That is not an accident but very much deliberate.

 

Also the assumptions about supply and demand in a competitive market do not depend on linear functions or monotonic increases, just that they are upward sloping and downward-sloping. Whenever I hear people make fun of economics in the assumptions I remember something John Cochran wrote: bottom line when the price of tomatoes rises people buy fewer tomatoes,

Chris Jans
Mar 4 2019 at 5:11pm

Another example of replacement of high-cost labor with mechanization: many manual car washes in the US; almost completely automatic washes in Norway. Although manual car washes have reappeared as Norway has opened up to low wage immigrants. From the Financial Times: Economics and the art of car maintenance. (this might be behind a paywall)

Ajit Kirpekar
Mar 4 2019 at 10:30pm

Listening to this podcast made me think of are related podcast with David Henderson and the incredulous one with Jamie Galbraith.

 

With all three I was prompted with the same nagging thought. Even if the empirics of the minimum wage are wishy-washy and unclear, I’ve never understood why professional economists like it so much. There’s no theoretical justification for it at all. In fact in the Jamie Galbraith podcast, he use the line, “contrary to supply and demand trained economist…” implying there’s some other school of economic thought that doesn’t run on supply and demand.

And as others have reiterated over and over, it’s such a weak and misguided policy tool to address poverty

Scott Solomon
Mar 5 2019 at 8:57am

There’s TOTALLY a theoretical justification for the minimum wage . . .

Suppose in a given locale 20,000 people are working 40 hours per week for $9/hr. and BARELY scraping by.

The next day, right wing guys eliminate the $9/hr. minimum wage, so all the businesses cut the wages of these 20,000 guys to $5/hr.

What do they gotta do? They gotta work more hours (maybe get 2nd, 3rd jobs).

So labor supply INCREASES when price falls (past some subsistence frontier).

What happens when supply increases? Price falls.

Since people can live in cardboard boxes, there’s no bottom to what the wages can fall to. At $0.75/hr., they have to send their six year old kids to go work for $0.25/hr.

This “alternative model” of price and labor supply is never taught in “Econ 101,” which describes the labor supply curve as linear and monotonically upward-sloping.

Decius
Mar 5 2019 at 9:54am

Because not all low-skill labor is fungible. When almost everyone cuts their wages to $5, the employer that cuts theirs to $6 can skim the top of the labor pool, firing people who are late or in the bottom 99% of productivity, and still have access to the entire labor force as a candidate pool.

Scott Solomon
Mar 5 2019 at 10:12am

Yeah, but the $5/hr. guys who get fired for showing up late learn not to be late anymore after going hungry for 2 weeks and get re-hired at $3/hr.

The “elite” $6/hr. guys still have to work 3 jobs, so eventually they’re exhausted, show up late, get fired, go hungry, then get re-hired for $2/hr.

Ajit
Mar 5 2019 at 12:09pm

I think you are still forgetting supply effects. If the minimum wage was eliminated in The true wage rate falls from $9 to say $6, there would be a ton of spillover effects not just roll over into profit.

 

It would also allow additional people to be hired and presumably more money to be used on higher-paying positions. The world your painting is almost like in monopolistic world where labor has zero bargaining power. Furthermore I really don’t believe low-skill labor remains permanently earning minimum wages. 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. Maybe not high-paying in the software engineer scope, but certainly a lot higher than a federal minimum wage rate.

Scott Solomon
Mar 5 2019 at 1:16pm

I’m not “forgetting” about supply effects, I just haven’t opined yet on “supply effects” . . .

There exists no limit to obnoxious business models that are able to be dreamed-up if near-zero wage levels are permissible.  If you’re uncertain about that assertion, go have lunch at a Jack In The Box.

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 can corral desperate people to collect themselves around bars at 4am at NYC so drunk prep school alumni can kick them in the face for $2/kick-in-the-face.

Your, say, morally-suspect premise seems to be that any business model is a pure-and-glorious wonderment of wonder if only it generates a profit (with no regard for how degrading the necessary wage level is).

PROBABLY guys like you in the 1850’s were saying they didn’t particularly like slavery, but plantation business models wouldn’t work as well without slavery, so slavery is just a “necessary evil” that had to be embraced in return for economic freedom and efficiency.

Ajit
Mar 5 2019 at 3:04pm

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. Where did I say all business models are moral or glorious or there is no need for rule of law. And mentioning slavery is a straw man argument in every sense. I might as well brand you a stalinist because you are in favor of minimum wages.

 

Since that’s the direction you want to take this, have a nice day.

Bonnie
Mar 13 2019 at 4:59pm

Scott Solomon  said ‘There exists no limit to obnoxious business models that are able to be dreamed-up if near-zero wage levels are permissible.”  As there is no limit to the options even unskilled workers have when faced with the unlikely scenarios you are accusing business owners of imagining. And it doesn’t include sending your 6 year old to work for 0.75/hr. IE Other jobs with better working conditions and bosses that don’t match your caricature of a business owner.  Programs//grants/loans  to upgrade skills. Short-term work at the lousy job to get experience to move up to a better job. Moving to where better jobs exist. 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. There is ultimately always a negative consequence to abusing your workforce.

Scott Solomon
Mar 5 2019 at 8:11pm

What I Find To Be “A Bit” Bizarre About This Minimum Wage Podcast

 

The book ‘A Beautiful Mind’ about the mathematician John Nash is one of the all time great books. A fairly mediocre movie was made out of this book.

The movie did have some bright moments, though, and one was when Nash wins the competition for the MIT job. Nash considers this a “teachering moment” for the other graduate students, so what does he tell them?

Does he say to them, “you should have read as many books as I read!” Nooooooo

He says to them, “you need to focus on general operating dynamics” — i.e., FIRST PRINCIPLES.

So let’s take a first principles approach to this podcast.

Thinking in first principles space, what model would produce the most number of jobs? $19/hr. jobs. $25/hr. jobs. $50/hr. Any number of jobs at any number of wage levels.

My answer to that would be the not-for-profit model.

Why?

It’s challenging to run a business that generates a profit consistently. God bless the people who create and run those businesses.

If your firm can generate revenues and pay salaries, though, and you don’t have to generate profits, that takes away A LOT of pressure. OR if your not-for-profit is sufficiently funded from the outside, you might not need to generate revenues at all.

Another observation I would offer, and an observation I would criticize economics education over, is that one can quickly think of almost countless productive and valuable activities an individual can engage in that require no capital and (to be honest) “low skills.”

For example, that Starbuck employee who got fired would be perfectly capable of brewing coffee and delivering it to disabled people in the neighborhood if he was sufficiently funded. The bus boy who was fired could work with a friend to use restaurant kitchen space to prepare meals for the indigent (during hours when the kitchen was not in use). IF funded.

So from these first principles observations, THE FOLLOWING would be my criticism of the podcast . . .

SUPPOSE nearly 100% of people and businesses with $50MM+ in net assets increased those assets at 5%/yr. or more. Suppose the global wealth of this group was $150TR (I’m probably low-balling it).

By designing a wealth tax of (say) 3%/yr. that is inescapable, you can get $4.5TR/yr. in funds.

Suppose these funds funded a global network of not-for-profits. Millions of them.

This would arguably be the most direct and efficient way to create jobs. The wealthy are still getting more wealthy. There was no communist revolution.

And you create just millions upon million of jobs (and paid work that people themselves, or other smart people, invent and presumably find meaningful).

I think these podcasts would be more inspiring if some of them were devoted to big, viable solutions to the abysmal arrangement that is the global economy.

A higher minimum wage is certainly not the big solution, but I don’t think the podcast covered many important aspects of the minimum wage (for example, how and why it came about in the first place historically, or the plausible scenario that a low minimum wage means people need to work more).

Tim Obst
Mar 5 2019 at 10:43pm

I was rather shocked to hear economists talk about which people having the same job we should  “care about”.  A lot of teenagers in restaurants have families to feed, if that is the criterion, especially cash jobs to feed kids in other countries.  In any event, this just turned a good part of the conversation into “which sob story” you push to sway the debate, which is a poor economic debate in my view.

I was wondering if the study considered how a possible natural effect would be the higher paid Seattle jobs would draw experienced workers from the surrounding towns, and most of the true entry level workers would have to go work in the surrounding towns to get their initial job.  What kind of effect is that on workers?

Finally, my local Costco has installed ordering kiosks at the Food Court and it is obvious that one worker gathering food for the kiosk customers serves three or four times as many people as one on a register, even with their limited menu.

 

Clyde
Mar 6 2019 at 7:06am

I’m reading through these comments, and absolutely gobsmacked by the audacity of one reading [or listening to] research-based observations, then simply setting aside the research, and asserting an opposite conclusion, based on an obviously preconceived conclusion, without offering a scintilla of empirical research whatsoever. As early as the first two colonies set up by the English in the “New World”, and ever since, the United States has been a giant experiment in different models of economics, based on one thing—the bottom line. If your model lacks incentive for a quality product and/or a sustainable employer/employee relationship, it will perish, and be replaced by another, more viable model.
That is, until politicians are allowed to pick and choose winners and losers, bail out “too-big-to-fail” favorites, and destroy the potientially superior model. 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.

GregS
Mar 6 2019 at 8:51am

Thanks for this excellent interview. I had just been reading the two studies that Vigdor’s group did on the Seattle minimum wage. They are both quite readable (most sections of the papers are fairly non-technical), so I recommend taking some time to sit down and read through them. It is a rewarding experience.

The papers mention that Washington is one of four states that collect both earnings and hours worked, which is the detail that made these papers such a unique contribution to the literature. Does anyone know what the other three states are? Are there other opportunities here? Any chance of getting, say, Illinois (which recently passed a minimum wage increase) to start collecting this kind of data?

Nick Ronalds
Mar 6 2019 at 10:59am

Great discussion. A new insight (to me) is that labour-saving innovations in one location, triggered by strictly local conditions, will eventually spread elsewhere, then everywhere.

This study confirms what many previous studies have shown. To wit, supply and demand does apply to labor markets, even at the low end. As another commenter noted, it’s amazing that so many economists are so receptive to the idea that the low end of the labor market is an exception to what they (were supposed to have) learned in econ 101 and thereafter.

Given how destructive the minimum wage is, and how cruel to the most vulnerable members of society, it’s shocking how widespread the support is for it among elites, including elite economists.

Jakob
Mar 6 2019 at 3:01pm

The problems for the lower-paid workers can be solved in other ways that just have the workers work lots of hours at a low pay.  It is known as a social safety net – it is not so bad with low-paying jobs as long as healthcare, schools, and college are paid from the collective.

Scott Solomon
Mar 6 2019 at 3:08pm

But why should the government have to subsidize terrible business models that can only generate a profit by paying wages on which no one can survive?

Nick Ronalds
Mar 6 2019 at 7:40pm

Scott, I’m beginning to suspect you’re smarter than you pretend to be. Of course, the whole point is that entry level jobs provide an opportunity to get experience, which quickly leads up the ladder. Vigdor noted in the podcast that busboys, for example, become more valuable very quickly and can then command higher wages.

Does anyone work for long at the minimum wage? Surely a tiny minority. 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.

Scott Solomon
Mar 6 2019 at 9:51pm

If you read a book like (say) Barbara Ehrenreich’s ‘Nickel And Dimed,’ you’ll begin to get the impression that millions of people are stuck in minimum wage jobs.

If these jobs exist at for-profit enterprises, it means the enterprises are presumably making a profit.

I don’t see why the government should be subsidizing dismal business models that can only generate a profit by paying wages no one can live on.

Jakob
Mar 6 2019 at 2:57pm

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. Like Sweden (where there is no minimum wage laws, rather negotiated agreements between the unions and the employers organizations, achieving the similar effect of high wages for simple jobs).  It is very strange to go to the US and have a lot of people around doing jobs like that – sometimes downright annoying with unnecessary service and servility. It is a matter of what you are used to. Table service in low-cost restaurants make no sense in a high-efficiency economy.

Still, it is a good question what a good goal is here.

Having higher wages tends to be good in that it forces innovation, increases productivity per person working, and generally makes it possible for people to have a long-term career in any job.  It makes sense that all jobs are considered long-term, right?  As long as the government steps in and trains the workforce to raise the overall skill levels at the same time, it need not be a bad overall deal (like high schools that actually train students for actual jobs, or apprenticeship systems, etc.).

Evidence seems to indicate that when the wage gap is smaller, most people are happier (http://freakonomics.com/podcast/happiness/), even if there is a small loss in dynamism.  Maybe not a bad deal?

On the other hand, there will (or will there?) be people who have a hard time being productive enough to motivate a high lowest wage in an economy.  This means that a high-cost economy might exclude some people from contributing at all.   Low-education immigrants in particular have a hard time finding work, given that expectations are at least high school for even simpler jobs.

It comes down to politics and choice – what kinds of wage differentials are acceptable?  Does it make sense to create jobs with very low pay in an economy that is rather high cost?  Do we want to have a “servant” class that serves the really high paid?

 

Nick Ronalds
Mar 8 2019 at 4:53pm

Yes, quite right. I once sat down in a restaurant in Amsterdam and waited for service. The waitstaff walked back and forth, completely ignoring me, without so much as an “I’ll be with you shortly”. After 15 minutes I left. In much of Europe you have the double whammy of no-tipping (the service charge is included in the bill) and high minimum wages. The resulting service level speaks for itself.

JK Brown
Mar 6 2019 at 7:41pm

And, as a result, it’s not so bad that teenagers can’t get work. They’re going to get back into school: ‘So, they don’t make any summer money. What’s the big deal?’

I believe you are being devil’s advocate here, but this got glossed over since Seattle doesn’t have teenagers to speak of apparently.

The idea that pricing teenagers/college-age students or workers out of the market is terribly short-sighted.  Learning how to work, how to show up for work, how to not goof off at work, is far more valuable than what is taught in school.  And, no, those traits are not inculcated by school.  Students are coddled and cajoled.  I’ve had several kids with master’s degrees show up, credentialed, knowledgeable (on some topic), but less capable than a 16 yr old–whose worked for a living, even for a summer– at actually working productively.

Which is more traumatic, getting fired at 16 or 17 for failure to perform or at 25 with student debt?  A higher minimum wage prices this education out of the market.  And it is this education that will be most valuable to any new worker and of ultimate value to the least capable in the market.

 

As to the value, and risk, of an employee, this business owner is insightful.  Almost no school trains students to find and solve problems without bothering the teacher and that bleeds over to bothering the employer.  But an employee that can’t operate independently decreases the productivity of the business and is a liability often best left unhired.  Those at the minimum wage level are the ones least likely to have independent work ethic.

 

 

 

JimD
Mar 6 2019 at 8:54pm

Extremely thoughtful discussion of minimum wage issues.  Thanks Russ.

Dr Golabki
Mar 8 2019 at 12:37am

Two thoughts –

 

(1) A challenge of the analysis is that an obvious market response is to increase the proportion of under-the-table cash jobs (as Jacob mentioned). Since those under-the-table cash jobs are invisible to the analysis, one would expect the observed reduction in hours worked to be greater than the real reduction in hours work. If you already have someone on normal payroll, I would think the bar is quite high for an employer to try to covert that person to cash-off-the-books. However, if you’re a new worker, I would think it’s pretty easy to say “work a few months, I’ll give you cash and we’ll see how it goes”. These newly employed people drive most (all?) of the reduction is observed hours worked. Does this indicate the effect on employment rate may be overstated? After all, it’s much easier to offer your new bus boy cash, than to convert from a sit-down to “fast casual” restaurant.

(2) At some level this is pretty simple. A minimum wage is price fixing, and one of the very VERY few things in economics that we know for sure is that pricing fixing is dumb and almost always does the exact opposite of the (stated) goal of the price fixing advocates. However, I think there is a real defense of the minimum wage, which I didn’t hear in the interview. I’m not sure I agree with it, but I’ll try to take it seriously – Given how important of the employer-employee relationship is to the life of the employee, and given that employees are humans and not the morally equivalent to any old piece of capital, should we make sure that employers have a certain (fairly low) threshold level of commitment to their employees, even if it reduces overall employment levels? In other words, should we try to force employers to have some skin-in-the-game when it comes to their employees? Now you might argue that the minimum wage is a pretty poor method to do this, but I think it’s worth considering.

Scott Solomon
Mar 8 2019 at 7:19pm

Before one loosely tosses around the term “price fixing,” I think the meaning of the term “price fixing” needs to be pinned down . .

FOR example . . .

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?

OR

Does “price fixing” refer to a pharmaceutical company that gets government funding to find a cure for a fatal disease, and the demand is almost perfectly price inelastic since you die if you don’t get the drug, so the company gets to FIX the price?

I think “price fixing” has to be precisely defined before you talk about price fixing.

Dr Golabki
Mar 9 2019 at 7:38am

Scott – good point – I should have said “price floor”. Government distorting a market by setting an artificially high minimum legal price. That was my error… it’s what comes of posting at 12:37 am!

Scott Solomon
Mar 9 2019 at 9:14pm

Even using the “Econ 101” term “price floor” can be misleading, because the labor market is subject to many other distortions other than a minimum wage.

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.

So globally there is always a chronic shortage of jobs, and this distorts the market and drives down wages.

Another factor is that labor supply increases as wages decrease below some subsistence threshold.

So an argument can be made that a minimum wage is not really a price floor, but instead sort of a peg to stop a downward wage spiral from having increasing supply at lower wages leading to even more low wages because of the increase in supply.

Dr Golabki
Mar 10 2019 at 9:56am

I certainly agree that the job market is complex. But your solution to the problem of a chronic shortage of jobs is to make it more expensive to create a job. As discussed by Russ and Jacob, that is unsurprisingly creating in an even greater shortage.

As I said, I think you could still make a case we’d want to make this kind of trade-off, but I worry that a minimum wage is a poor way to help workers. I think part-time work and contracting are MUCH bigger problems for workers than the minimum wage. And I think a UBI is a more rational way to set an effective price floor on labor.

Scott Solomon
Mar 10 2019 at 11:03am

There are some aspects of UBI that don’t sit well with me.

There’s a great scene in the film ‘3:10 To Yuma’ in which the Christian Bale character talks about how the government gave him a sum of money when he permanently hurt his leg in the Civil War.  He says, “the gvt. didn’t give me the money so I would walk away from it.  It gave me the money so it could walk away from me.”

A better approach than UBI would be a $10TR/yr., global not-for-profit that funded millions of not-for-profits.

An unemployed Starbucks worker could go online, describe how he’s going to brew and deliver coffee to the disabled in his neighborhood, come up with a name for his not-for-profit, and the giant not-for-profit would pay him $20/hour to do that.

It would certainly look better on his resume that he invented and created his own not-for-profit than he worked at Starbucks.  Of course other not-for-profits would have to be funded to monitor these micro-not-for-profits to ensure they guys weren’t just sluffing-off.

This would suck so many people out of the for-profit labor force that supply/demand might then raise wages in the for-profit sector to very live-able levels, making a minimum wage irrelevant.

A global, inescapable, 3%/yr. wealth tax could fund the giant, global not-for-profit.

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.

UBI relegates a large swathe of the population to being “takers,” so it’s not optimal in my view.

Also, since UBI is “universal,” a lot of money is being wasted when the $60k/yr+ guys are also getting UBI.

The not-for-profit idea funds people to engage in productive activity, which is a fundamental human drive.

Dr Golabki
Mar 13 2019 at 9:30am

Scott – I’ll take that post as agreement that the minimum wage is probably not the best solution to labor market problems.

 

I’m not trying to make a strong case for a UBI. Just making the general point that there are alternatives to the min wage.

 

I will say your scenario “he’s going to brew and deliver coffee to the disabled in his neighborhood, come up with a name for his not-for-profit, and the giant not-for-profit would pay him $20/hour to do that” Sounds like a bureaucratic nightmare that is almost certainly going to result in the least efficient possible way of delivering coffee to disabled people. Maybe there’s a blockchain approach to solve this, but it actually sounds like the incredibly low efficiency is a feature, not a bug, in your view. Essentially the Kaynsian paying people to bury money and others to dig it back up. Regardless – I think a general labor subsidy would make more sense and do a similar thing.

Gerald
Mar 8 2019 at 9:42am

I’ve seen new restaurants open in Cleveland Ohio and Atlanta Georgia which is the order at the counter bus your table concept. And I totally expect the restaurant of the future to have no brick and mortar whatsoever but rather just be a kitchen in a warehouse with 100% delivery via GrubHub or ubereats

Butler T. Reynolds
Mar 8 2019 at 11:45am

I’m surprised that there’s not more discussion on the effect that the federal minimum wage has on rural and smaller towns across the country rather than wealthy cities like Seattle. My hunch would be that the minimum wage and other tax/regulatory requirements  that make labor more expensive are devastating to small towns.

I’m guessing that it mostly has to do with the difficulty of data collection and controlling for too many variables.

Given those problems, it seems that we would hear more commentary and see more studies about the effect that minimum wage has had on Puerto Rico — not necessarily a tiny data set.

John Thurow
Mar 8 2019 at 4:44pm

Another question is: what happens when a recession hits and businesses can’t adjust wages?  It is all well and good with an expanding economy but what will Seattle do if it stops growing?

Also is there a way to determine what the natural minimum wage is and how close the mandated by law minimum wage is?  I would think that there would be less and less affects from the mandated law as long as it is close to the natural wage.  Is there a way you can determine that?

I think it is disingenuous to say that there was no impact to employment from the law without taking out the population growth.

Josh
Mar 11 2019 at 5:48am

I was a little confused by this. The upside, seemed to be wage increased (as we would expect). According to Vigdor et al’s 2nd paper, these wage increases seem to have been enjoyed across the distribution of low wage earners, not just a blunt increase of those who start below the minimum wage to bring them up to that wage. Again, this seems to stand to reason – raise the floor and some increase is enjoyed throughout the distribution near that floor.

The downside that was discussed at length in the episode was a decrease in the absolute number of low paid jobs. But surely that is an almost inevitable (benign and largely mathematical) result of increasing wages for the lower paid? More of them cross the cut-off out of our definition of the “lower paid” category, leaving fewer jobs in that “low paid” category. It doesn’t necessarily mean the nature of these jobs changes, or that people can’t get on the bottom rung of the job ladder. It just means that the lower paid jobs aren’t so low paid any more, so there are fewer jobs beneath any given “low” threshold. 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.

This all sounds good to me. Particularly in a city with less than 3% unemployment and where unemployment continues to fall at largely the same rate as the surrounding areas.

What did I miss? Why is the fall in “low paid” jobs taken to be a bad thing, rather than a natural result of jobs becoming better paid, leaving fewer “low paid” ones??

Marilyne Tolle
Mar 11 2019 at 8:29am
Seth
Mar 12 2019 at 2:02pm

I enjoyed the podcast. A couple things I haven’t seen comments on…

How Vigdor’s study was misrepresented in the media. Always thought it would be a good idea for authors to keep a running blog addressing the inaccuracies in how their studies are reported. But, may just take too much time.

The other was the comment made by the Mayor’s staffer’s comments about ‘these jobs going away anyway.’ I thought that was rather illuminating.

 

 

Cynthia
Mar 13 2019 at 12:48pm

As a small business owner and employer in California, I can tell you how I’ve been reacting to the increase in minimum wage that will eventually be $15/hour. I used to employ a few part-time college aged people to do some assembly and packaging of my products. For the past 2 years I have started reallocating labor from my employees to my suppliers in China. I now receive a number of my products completely assembled. In addition, I am now using China suppliers to print the packaging instead of local US suppliers.

I also have a local vendor who has a machine that performs the same task that I used to pay my employees to perform and I will contract with him on large orders.

I sell low priced consumer products in a competitive space so these are the decisions I must make in order to stay in business.

Suneel Mahajan
Mar 16 2019 at 2:31pm

May be one of the reason for work hours decreasing with increasing wage is that the workers decided to work less hours as their needs were fulfilled. If you need say $100, you are reaching the goal by working 7 hours instead of 9 hours.

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DELVE DEEPER

This week's guest:

This week's focus:

Additional ideas and people mentioned in this podcast episode:

A few more readings and background resources:

A few more EconTalk podcast episodes:


AUDIO HIGHLIGHTS
TimePodcast Episode Highlights
0:33

Intro. [Recording date: February 19, 2019.]

Russ Roberts: My guest is economist Jacob Vigdor.... Our topic for today is the minimum wage, and in particular the minimum wage in Seattle and your efforts to measure its impact and the challenges of that. Let's start with some history. What's happened in Seattle with the minimum wage? It's kind of at the vanguard of living wage, minimum wage legislation.

Jacob Vigdor: Yes. Back in 2013, there was a lot of local activity surrounding the minimum wage. And it started in a little town south of here called Sea-Tac. It's where the airport is. There was an organizing campaign back in 2013 to get a ballot initiative together to raise the minimum wage to $15 an hour immediately. And that ballot initiative was successful. So, as of early 2014, the small city of Sea-Tac, Washington, adopted the first $15 minimum wage in the nation. Then, on the heels of that success, the other thing that happened in the election of 2013 you had a Mayor and a City Council in the City of Seattle that campaigned on the issue of raising the wage to $15 an hour. So, those candidates were successful. And so what happened after that was a few months of negotiation. 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. And so, they did it. They passed a law, in June of 2014. It involved a slower phase-in schedule. And different phase-in schedules for businesses of different sizes. So, large businesses hit the $15-an-hour level in 2017. The smaller businesses just hit $15-an-hour this year.

Russ Roberts: And, of course, there are a lot of people who made predictions about what would happen. In particular, there's been a focus on the fast food industry and, because I follow people--probably a mistake, but I do--who care about this and who are constantly ranting about it--there have been both triumphant claims that, 'Uhp, see! It didn't hurt anybody. It only helped people.' Versus the opposite, which said, 'Uhp, it's decimated this particular group, or this particular industry.' Or if one of those claims is made, people on the other side would explain why it still was an open question. And obviously people care a lot about this. You have been involved in trying to assess the impact. Talk about who has sponsored that research and how you got involved.

Jacob Vigdor: Sure. Yeah. I actually moved to Seattle to take this job in July of 2014. So, just the month after the City Council passed the ordinance. I had been reading about the Seattle minimum wage in the news, and one of my first days on campus I had lunch with one of my new colleagues, Mark Long here in the Evans School, and I asked him if anybody was doing anything about studying this minimum wage initiative. And he told me that there was a little group getting together. And he invited me to join them for a meeting. So, I did. That would have been in late July, early August of 2014. And it turns out that the City of Seattle had put out a request for proposals. Because they were commissioning a study of the impact of the minimum wage. And so, I joined a group here at the U. of Washington that was putting a bid together for that contract.

Russ Roberts: And, you won that bid, presumably.

Jacob Vigdor: Well, we were the only bidder. It was kind of a funny story. Because, you know, usually a request for proposals will say things like, 'Well, here's the budget that we're looking for.' Or, 'Here's the [?] we have to award.' There was no such information in Seattle's RFP [Request for Proposal]. So, we looked at the scope of work that the City had put into this Request for Proposals. And we just sort of penciled out how much that would cost to get all that work done. And we put together a bid for $1.7 million dollars. And then, right after we submitted the bid, the Mayor put out his proposed budget. And in the Mayor's budget we saw that there was a line item for this study for $100,000.

Russ Roberts: 'Nyeh[?]. Perfect.

Jacob Vigdor: Yeah. But, being the sole bidder, what ended up happening is that the folks in City Hall just sort of called us up and said, 'Okay. Let's get together and figure something out.' So, we went in and negotiated. They actually managed to scrounge up a little bit more money than the $100,000 they had initially thought of spending. And then we told them that, 'Well, we can supplement whatever money you give us with foundation grants. So, why don't we just sort of get this project started with a little bit of seed money from the City; and then we'll go out and see if we can raise some more money?'

Russ Roberts: And you did. And you've been studying the results in a couple of different places, if I understand it correctly. Is that right? A couple of different studies.

Jacob Vigdor: So, what we've done, over the past few years--it's a multi-faceted, multi-disciplinary effort to study the minimum wage. The part that gets most of the media attention is the data analysis component, where we're looking at unemployment insurance records to try to figure out what's going on in the low-wage labor market here. But we also got a lot of survey and interview work. We've been talking to business owners and managers. And we've also been talking to 50 low-income families that have been trying to make ends meet on the basis of work here in Seattle. And, what's kind of nice is that these different facets of the study kind of corroborate each other and help us paint a more complete picture of what's going on.

6:47

Russ Roberts: Now, before you got involved with this study--let's go back to when you arrived in Seattle, even--you presumably had some idea about the minimum wage and its impact. Talk about that and how that has affected your analysis of it all.

Jacob Vigdor: Like many economists, I had come into this thinking that there were certain issues with the minimum wage. I thought that it was a not-very-well targeted way of trying to deliver higher incomes to low-income families. I thought that for every dollar that you delivered to a family in poverty, you were delivering additional dollars to teenagers and other workers that we weren't really that concerned about. I was also concerned that the minimum wage would largely be paid for largely by a tax on food. With the idea being that if you look through the supply chain of food, from farms to grocery stores to restaurants, all of those sectors of the economy happen to be places where there's a large amount of low-wage labor. And also those are sectors of the economy where the profit margins are pretty low. So, I was concerned that this would end up being passed along to consumers. So that's sort of where my priors were coming into it.

Russ Roberts: And some of those consumers, of course, are low-wage, poor folks who are going to pay more for something that's really important.

Jacob Vigdor: That's right. So, if you think about the incidence--you know, what share of a family budget goes to food--that's going to be a very regressive tax, so to speak.

8:28

Russ Roberts:

Russ Roberts: And, measuring this--the effects on either the labor market or the price of food--is, like every economics measurement problem, made more complicated by a whole bunch of factors, one of which is that there are a whole bunch of factors that affect labor markets and prices, and employment, and wages; but also by the fact that this was an issue that had been discussed for some time. So, the other challenge, of course, is that some of the effects may take place before the actual legislation goes into effect, because people are anticipating it.

Jacob Vigdor: That's right.

Russ Roberts: So, what's the--how did you cope with that? Tell us about the methodology you've used and how you've used more than one kind in trying to assess--let's start with the most salient issue that people worry about, which is employment.

Jacob Vigdor: Yeah. Well, the thing that really helped us out, and what really changed my mind about whether this project was really worth spending a lot of time on: Washington State has administrative data that captures how many hours people work in a calendar quarter. And, that was kind of a game-changing piece of data for us, because it meant that we could actually compute what people's hourly wages were. Whereas most studies that have gone before this have not really had access to information on how much people earn per hour, on sort of a systematic basis, throughout the economy. So, our data came from Washington State. And so basically our strategy came down to comparing the employment patterns in Seattle to comparing employment patterns in other parts of Washington State. And so that was a central challenge for us--is trying to figure out what parts of Washington State give us the best idea of what might happen in Seattle if the minimum wage had never gone up.

Russ Roberts: And how did you go about doing that?

Jacob Vigdor: Well, we tried a number of different methods to start out. So, the classic way to do this in the minimum wage literature is to compare the place that raises the minimum wage to someplace next door. And that goes back to the Card and Krueger paper in 1994 which compared Pennsylvania and New Jersey. So we tried that: We tried comparing the city of Seattle to the area just outside the city and to counties that were a little bit further away. We found some issues with those methods--with the standard kind of border-discontinuity methods--because they didn't pass falsification tests--

Russ Roberts: Explain.

Jacob Vigdor: That steered us to using synthetic control methods.

Russ Roberts: But explain what you mean by falsification tests. What was wrong with the, say, suburban areas outside Seattle where the legislation wasn't in place?

Jacob Vigdor: Yeah. Yeah. So, the basic idea of the falsification test--you know, if the areas right outside of Seattle are a good control for the city of Seattle, then what you do and what we did, was try to run the same methodology but using data from before the minimum wage increased. And then, there, we would expect to see effects of zero. Because, there really is no difference in minimum wage between the quote-unquote "treatment" and quote-unquote "control" regions. But when we did that, using Seattle versus the areas immediately outside Seattle, we saw that there were these large-effect estimates even when there was no policy on the horizon. So, that led us to think that, underlying trend difference between the City of Seattle and the immediate suburbs of Seattle that make the suburbs kind of a poor match for the city.

Russ Roberts: So, this could be an example like--just to make it concrete--employment could have been growing in Seattle while it was shrinking in the suburbs. Which would make it--it could be growing for a particular type of labor while it was shrinking in the suburbs for that type of labor, that level of skill, that segment of the labor force. And then you wouldn't be able--you essentially wouldn't be controlling for differences between the two areas. Too much else was going on.

Jacob Vigdor: Yeah. That's right. And, you know, if you want to tell a bigger story about what's going on, since the 1980s, a lot--if you go back 50 years and track the time period from, say, 1960s to the 1980s, that was a period of time when the suburbs were growing and the cities were shrinking. And Seattle was definitely part of that trend. But then, since the 1980s, people are actually coming back to the city. And the city is enjoying a lot of population growth. The labor market is doing very well here. And so, the city is actually doing better than the suburbs by a lot of measures.

Russ Roberts: 13:18 And since they don't match each other in various types of differences that might matter for the labor market, you weren't able to use those as your effective control group.

Jacob Vigdor: That's right. We didn't really feel confident about that methodology. And so we tried something different: the Synthetic Control Method.

Russ Roberts: And explain that.

Jacob Vigdor: So, when you do Synthetic Controls, basically you are just looking around--in our case the State of Washington--and trying to identify parts of the State of Washington that have a strong track record of matching the employment trends in the City of Seattle. And, what we discovered when we did that is that the best matches for the city were not really the inner-ring suburbs that were closest to Seattle. They were actually on kind of the outskirts of the greater Puget Sound, metropolitan region. So, what you might call the ex-urbs. So, these were places that were actually growing kind of fast, because they were reflecting the population growth of the region. And that was the best match for a city which is also exhibiting population growth. So, in the State of Washington, the synthetic control pointed us towards areas that were down near Olympia, on the south end of the sort-of urbanized region. And areas up near Everett and Marysville on the north end of the region. And some parts of the state near Spokane, as well. 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.

Russ Roberts: And, of course, you didn't know anything about why they matched, or why they matched reasons that were coincidental or important. This was just the data talking. Correct?

Jacob Vigdor: Yeah. This is kind of a black-box kind of methodology. It's not designed to give you the story. 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.' And, it's only ex-post, after you see the parts of Washington State that sort of lit up in this process, that you can then kind of infer a story about, 'Okay, what makes these regions the better match compared to, say, what's right across the city limit?'

Russ Roberts: One example that comes to mind is that if you think that a lot of the impact of the minimum wage is going to show up in the food industry, you'd ideally want to have the matching areas have similar patterns of restaurant growth, expansion of employment in the food industry. Right? You wouldn't want to have--even if the labor markets are similar, you'd be somewhat uneasy if you had the data if Seattle was adding 10% in its number of restaurants a year but the suburbs--the ex-urbs--you were matching were shrinking. Or vice versa.

Jacob Vigdor: Yeah. And I think that the pattern in Seattle that we really wanted to match was a pattern of pretty strong growth. With the exception--just like every place else, Seattle's labor market shrank during the Recession--between 2007 and 2009 or so. But, in the period since about 2010, this city was growing really rapidly. And that's measured both in terms of population and in terms of employment. And, so, we were just looking around Washington State, trying to find other geographic regions that could match that pattern of growth.

Russ Roberts: And the reason for doing that is that if the minimum wage could have an impact, but it wouldn't show up in the form of fewer jobs, but not as many jobs added in that type of growth. Right? You are trying to create a what-if that you can't literally observe.

Jacob Vigdor: Sure. Yeah. So, if employment had been growing at the rate of, say, 10% a year, and then the growth rate declines to 5% a year, well, you know, you could look at the data and say, 'Well, employment is still growing.' But then, if it's growing slower than it used to, then maybe we want to infer that that's a negative impact of minimum wage. And so, what we did was compare Seattle to these other regions that have the same track record of strong growth.

17:55

Russ Roberts: And, so tell us what you found.

Jacob Vigdor: So, when we did this methodology, what we found was, first of all, the minimum wage did appear to raise wages. Which is--sort of a--that's what we expected to see. But when we looked at employment, we actually saw a reduction. 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. 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%.

Russ Roberts: So, when you say 3% you mean for the people you expect to be affected or overall the whole population? How do you define--

Jacob Vigdor: Yeah--this was another challenge--

Russ Roberts: How do define who is affected? Is it just people who are earning within the band of their current wage and what the wage is going to be or the people just above it? Who you would also expect potentially to have an impact.

Jacob Vigdor: Yeah. So there's this kind of this existential question of what is a low wage job. And, if a low-wage job all of a sudden has its wage increased, does that make it no longer a low-wage job? What we decided to do was to look at the data and try to figure out if there was a point in the hourly wage distribution above which we really didn't see any action as a consequence of the minimum wage increase. And we ended up choosing the threshold of $19 an hour. So, when we talk about the low-wage labor market, we are really focusing on jobs paying less than $19 an hour. And that's sort of inflation-adjusted to 2015 dollars. We've experimented with different thresholds ranging anywhere down from, you know, $15 an hour all the way up to $25. I think we even tried up to $40. And the results are pretty robust to our selection of threshold--

Russ Roberts: So, when you say--

Jacob Vigdor: But that's what--yeah, go ahead.

Russ Roberts: So, when you say, incomes, or wages, or earnings I guess would be the right phrase--earnings are up 3%, or now wages are up 3%, is that for workers earning $19 and less?

Jacob Vigdor: Yeah. In the segment of the labor market with hourly wages under $19, we saw a 3% increase in hourly wages.

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. And some didn't. Can you talk about that?

Jacob Vigdor: Yeah. So, I think one of the important things about the low-wage labor market is, overwhelmingly part-time work. Some of the work that we've done with the data, we've seen that amongst people earning the lowest wages, only about 10% of them are looking like they work 40 hours a week, consistently, for, you know, periods of more than 6 months. So, it's overwhelmingly part-time work. And we see that in general there are hours decreases. The hours decreases appear to be concentrated amongst the least experienced workers. 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.

Russ Roberts: And that's consistent with other work I think that's been done out of--is it Texas A&M? and Jonathan Meer's? Is that what they found, also?

Jacob Vigdor: Yeah. So, they're--it's kind of interesting that the minimum wage literature is very bifurcated. And there are studies that will show you that there's not very much impact whatsoever. But then there are other studies that show that there are these negative impacts, and yeah, that what we are pulling up here is consistent with a lot of prior studies, actually, sort of, that have shown, in these prior studies examined the impact of minimum wage increases on teenage work. Teenage earnings, teenage employment. And there have been more consistent negative estimates there. So, our work is consistent with that.

22:18

Russ Roberts: And that's your point about lower skilled workers. And I assume--well, let me ask you this: Do you also have data on multiple jobs? When you say people are working part time, are some of them working multiple part-time jobs? Are you able to tell that?

Jacob Vigdor: Yeah. Our data have names and Social Security numbers for everyone. We can track how much they are working across all the jobs they hold. So long as those jobs are kind of above the table, and they also need to be jobs that are traditional wage-earning: you get a W-2 from your employer, type of jobs. The gig economy, if you are a contractor and not an employee--if you get a 1099 and not a W-2, that employment is not in our data.

Russ Roberts: And you said above the table. So, somebody who is getting cash to work on a landscaping project on a Tuesday morning is not going to show up in your data.

Jacob Vigdor: Yeah. That's correct. Of course, another reason that someone might not show up: If you own a business and you are paying people, you know, the work that you put in, in terms of owning a business, is not reported, either.

Russ Roberts: But you are probably not a low-wage worker in that situation. Or is that not the case?

Jacob Vigdor: You might have some people who are in the low-wage labor market who transition. So, for example, if you start out doing landscaping work and then you decide that you want to start your own landscaping business, then you might transition from doing wage work to being a business owner.

Russ Roberts: And not make so much money for a while, until you get your business started, and--yeah.

Jacob Vigdor: Yeah. Well, you could make a little money or a lot of money. But once you become a business owner then you stop reporting your earnings to the UI[?] system, and therefore you are invisible to us.

24:17

Russ Roberts: So, when you say that hours were down 6 or 7%, can you give us an idea what that means exactly? Because as I said, as I hinted at--I'm sure it's true; that's the average. It's not every worker. So, what does that number mean? How should I interpret that?

Jacob Vigdor: Yeah. So, if you want to think about a low-wage worker, think about someone who is working maybe 20 hours a week. So, our numbers are suggesting that for the typical person who is working 20 hours a week to start, then, when the minimum wage goes up, in particular to $13 an hour as of the beginning of 2016, they're maybe getting on average between 18 and 19 hours a week. So, it's a relatively small impact. And we do show evidence that there's a lot of heterogeneity in that effect: That more experienced workers, they may be seeing some reduction in hours, but it's going to be a smaller amount. It's basically less than 5%. So, if you are starting out at 20 hours a week, you are still getting at least 19, and, you know, maybe averaging a little bit more than 19 hours a week. 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. They might be on the order of 10%.

Russ Roberts: And what's the net impact on earnings? Which is hours times wage.

Jacob Vigdor: So, when we look at the low-wage labor market overall, what we're picking up is the amount of money paid out in the low-wage labor market declined. But that's, of course, lumping together. When we looked more specifically at the trajectories of individual workers with differing levels of experience, we found that the more experienced workers were coming out ahead. On average they were taking home--not necessarily taking home, but their paychecks were reflecting an extra about $20 a week. 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. And then, the big losses in terms of much lower pay would be amongst the workers who hadn't even entered the labor market yet when the minimum wage started to increase, because they were finding it harder to find any work at all.

Russ Roberts: Help me think about those people. So, I'm a--maybe I've been out of the labor force, or maybe I've just turned, I've just left school. And I'm looking for work; I don't have a lot of skills, and I'm trying to get a job as a dishwasher or a gardener--helping somebody with gardening or contracting. And, you're saying I'm not going to find the work to start with? Is that the issue?

Jacob Vigdor: Yeah. So, there are lots of job openings in Seattle. But the general pattern is that employers are emphasizing experience. And, you know, as economists we tend to talk about skills. But the Number 1 skill that you can have as a dishwasher is experience being a dishwasher. 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. You can be productive starting from Day 1 on the job. And that's really what employers are emphasizing. They are really interested in having people who have familiarity with the job already, who do not need to be trained on the job. Because on-the-job training is an investment, and at $15 an hour that investment doesn't make sense from the business owner's perspective.

Russ Roberts: Well, that's your supposition. And you said you augmented some of the statistical work with some interviews and, we might call them [?] sociological case study approach. Is that what people say? Or, is that your guess? And even if they say it they may not really--it just could be a story that they're telling, right?

Jacob Vigdor: It could be a story that they're telling. But, the story is consistent with the data that we're picking out. But basically, one of the things that we see in the low-wage labor market, the turnover rates are very high. And particularly amongst teenage workers, many of whom are just looking for a little bit of summer employment or just a few hours. From the employer's perspective, that's a riskier proposition. To hire someone who is young, doesn't necessarily have a work history, they are not necessarily going to be reliable. You know--that proposition is highly sensitive to the wage. That's at least the story that we hear from business owners; and it's consistent with the data that we're picking up. Which is: If you only have to pay a teenager $9 an hour, or $10 an hour, it's a very different proposition than paying them $15. Because of the risk involved. And, the labor force attachment is kind of weak. I had one business owner tell that with teenage workers, sometimes they'll come in and they'll say, 'Oh, can I have Friday night off?' And the manager says, 'Well, no. I need you to work Friday night.' And then the response is, 'Well, then I quit.' So, if you are dealing with a segment of the workforce for whom the labor force attachment is that weak, then any kind of investment you make in trying to train that worker may not yield much payoff if they are going to be quitting after a couple of weeks.

Russ Roberts: And the argument is that at $9 an hour, it's cheaper if I lose a couple of hours of training versus $15, especially if I don't get anything after that.

30:24

Russ Roberts: So, you are confirming all my priors. Which I should just get out on the table for listeners, although some of you, I'm sure, have an idea what they are. I have often argued that the minimum wage is a tax on low-skilled workers to help other low-skilled workers. Exactly in the way you've laid it out: That, the workers with the least experience and the least skills, who most need a chance to get on the labor market ladder, are--those rungs were cut off for them. There is a benefit to people who keep their jobs or who keep their hours, or who have small reductions in hours. And that--it's kind of a brutal way to improve the skill--excuse me--the income of low-skilled people. Now, on the other side, you could argue--I wouldn't, but you might--that, 'Well, this is exactly what we want. Because we don't want to help teenagers. The whole idea of this was to help poor families and people who have low skills, who are trying to support their children. And, as a result, it's not so bad that teenagers can't get work. They're going to get back into school: 'So, they don't make any summer money. What's the big deal?'

Jacob Vigdor: Yes. You could argue that what we have in the low-wage labor market is a combination of some workers who have a family to feed and are really looking for money that they need to survive, competing against workers who--you know, really they're trying to gain experience. That's really important for them. If they make some money, 'Hey, that's great.' But they don't need the money to survive. And so the consequence--you know, if you think about it: If you are trying to get a job in part so you have some experience to put on your resume so that it's easier for you to get more work down the road--um, you know, your reservation wage--if you have all of your sort of life covered by your parents or by your family, your reservation wage is going to be really low. And so--

Russ Roberts: Reservation wage being the amount you are willing to accept to just take that first hour.

Jacob Vigdor: Yeah. That's right. That's right. I mean, so you have a lot of the young workers, college-age workers, who do internships. And unpaid internships. And part of the message there is they really value getting the experience; and the money, you know, they can do without. So, if are one of these workers that is trying to make ends meet on the basis of this type of work--you actually are an adult, you are on your own, no one else can support you--um, and you are going into this competition against people who are really willing to work for just about any wage--it's going to make things more difficult for you. So, you could look at the minimum wage as a way of--so, if we think of the minimum wage as a policy that basically prices the least experienced workers out of the market, if we think that those least-experienced workers are going to be disproportionately people who are going to be fine in the long run--because, as you said, they are going to stay in school; they are going to invest in their own human capital, and they are going to end up getting jobs that are much higher-paying in the long run. Maybe that's okay. I think that if you look around the city of Seattle--Seattle is the city with the second-lowest percentage of teenagers in the population in the United States. Only San Francisco has a lower percentage of teenagers in the population. So, what this means, is Seattle is a little bit different from the rest of the country. If we think that the minimum wage is a policy that prices teenagers out of the market, the interesting little factoid about Seattle is that we don't have a lot of them to start with.

Russ Roberts: That's fascinating. And I guess the other concern I would have is, this is pretty short run. It hasn't been in place very long. There hasn't been that much time for employers to respond. And of course, the minimum wage is actually going up to $16 dollars--is that January 1st this year?

Jacob Vigdor: Yeah. For the large employers in Seattle, the current minimum wage is $16 an hour.

Russ Roberts: And so, it will be interesting to revisit some of these numbers in 2-3 years, to the extent that we can. We have to be able to match and be confident we are matching these workers well with others that we can compare them to. But the--other question, which would give you information, would be the effects on restaurant formation. So, a lot of--there's a lot anecdotal evidence, which, I, even though it confirms my biases I try to ignore that some restaurant closes and says, 'Yeap. We just couldn't pay the minimum wage.' Those stories run now and then, and again, on Twitter. People who think like me wave those around. And the people who don't think like me ignore them. Or explain that it's just one restaurant. So, what do we know systematically, if anything, about those kind of issues in Seattle? Which would be important?

Jacob Vigdor: Yeah. One of the most interesting conversations that I had regarding the restaurant industry: I got a call, shortly after I signed on to this study, from a person who was the CEO [Chief Executive Officer] of the Washington Restaurant Association. He wanted to meet, and he wanted to just kind of bend my ear and get my perspective about--what perspective we were taking. Basically, he just wanted to see, 'Okay, are you guys just sort of hook, line, and sinker going to write a study where the conclusions are foregone conclusions? Or are you really doing this on the level?' 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. Our members of this Association--the minimum wage, it's not going to break them.' And the reason why, he said, is because, 'there are so many strategies that we have to basically reduce our labor.'

Russ Roberts: Right.

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. And these include things like, instead of hiring a prep cook to chop vegetables for you, you just order chopped vegetables. And, so, that eliminates that job from your kitchen.

Russ Roberts: And, you order them from an area that doesn't have a $13 or $15 minimum wage, so they are cheaper than they would be if you did it yourself.

Jacob Vigdor: Yes. Those vegetables might be chopped in Mexico, for example. Another thing that he mentioned, and this is something that we see quite a bit in Seattle--so, there's a move away from table-service restaurants to order-at-the-counter type restaurants. 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. The new style of restaurant in Seattle, and actually one of the closest restaurants to my house did this transition over the past couple of years. You go; you order at the counter. They call out your number or your name when the food is ready, so you are the one transporting the food to your table. You are the one bussing your table when you are done. And so basically what had been tasks accomplished by low-wage workers on the clock are now being accomplished by an unpaid person--which is the customer. So, little tweaks like this--that's how restaurants have coped. And it's absolutely true that the restaurant industry in Seattle is, by and large, doing fine. There are some closings; but there are quite a number of openings as well. Our efforts to try to understand whether the minimum wage has impacted the business opening and closing rate have generally found that we don't find any effect. But what we do find is that the patterns of openings and closings are steering the city towards less labor intensive restaurants. So, we're moving away from full service. We're moving towards order-at-the counter and other forms of serving people food that involves fewer labor hours.

39:10

Russ Roberts: So, does that show up directly? I mean, obviously--I don't know how hard that is to measure. I don't know if you have that in the data. So, even if you had the same number of restaurants, you could have a reduction in those labor hours, you are suggesting. Can you measure it?

Jacob Vigdor: Yeah. We actually do have the capacity to estimate effects on the number of hours worked in the restaurant industry. So, the biggest reduction in hours worked in the restaurant industry we found is amongst the lowest-paid workers. Which is [?] a restaurant that has done away with the bus boy, because now the customers are bussing dishes. You are getting rid of the lowest-paid worker in the establishment. And then the people who are earning higher wages--the people who are actually cooking the food and who do the customer service tasks like taking the orders at the counter--they are going to tend to be higher-paid because you need a slightly higher skill level to do something like, you know, cook food to order. You know, I think that the statistics that I've seen suggest that a lot of people with even a little bit of experience, it's quite easy to find work well above the minimum wage, as high as it is, in Seattle. It's just that there are these other categories of jobs that have fallen.

Russ Roberts: So that busboy is in your data set, and was earning $9 or $10 or whatever it was before this legislation. And now they are just--what? What do you see? Do you see them doing something else with fewer hours? Do you see them working only one part-time job instead of two? What are you seeing there?

Jacob Vigdor: Yeah. 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. And so, what we're finding is that those people who are in entry level jobs at the time that minimum wage went up, they are more or less breaking even. 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. And what the data are suggesting to us is that the people who are really coming out behind--it's not the busboys of 2014, because the industry is such that if you were a busboy in 2014, it's very common for you to have moved up in the world by 2015, or by 2016. The people who are falling behind are the people who would have been hired as the busboy in 2016 or 2017. By 2017, someone who was hoping to be hired for a busboy-type position is going to discover that many restaurants have eliminated the job category altogether. And the people who had the job of busboy as of 2014, they by and large are at least breaking even, because it's fairly natural in this industry to move up from the position of busboy: once you learn the business a little bit better, once you learn a little bit more, to join the wait staff or to join the kitchen staff.

Russ Roberts: And you've got some familiarity with the boss, and they might know that you're reliable and all those things that are intangible and can't be measured.

Jacob Vigdor: So the natural moves up the ladder are the saving grace. So, the idea that busboy is not typically a terminal position is what helps out the people who had these lowest-paid jobs as of 2014 or early 2015.

Russ Roberts: Just to make it clear: You're not saying that every single restaurant went from table service to take-out at the counter. Obviously, some restaurants stayed with table service and kept busboys. And there are people who are, presumably, in 2019 able to be a bus boy, I would think, at $16 an hour--

Jacob Vigdor: Yes--

Russ Roberts: because that restaurant wants to keep a certain style: they've raised their prices, some. And some of them presumably will go out of business, because the customers aren't willing to pay that extra amount and competition with other restaurants. But, there are some out there, I assume.

Jacob Vigdor: Yes. Actually, there's a really interesting study. It's not ours. But it's a study that looked at restaurants on the basis of their Yelp reviews. 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. I think this was a study based in New York City; and it wasn't Seattle at all. But I think that that's sort of--if you are a popular restaurant, I tell ya', Seattle is an affluent town. There is a lot of money here. Amazon's been hiring tens of thousands of programmers, and they pay them really high salaries. So, there's a lot of people that have the income to be able to afford going out to eat at a full service restaurant. So, absolutely, we still have a pretty large number of full-service restaurants in the city. But, you're right: This is kind of a premium product. It's premium service. And you are going to pay a premium price for it. I actually--I went online a few months ago to just sort of look through the archives to see what online menu prices had been like just a few years ago. And, absolutely, you can see that menu prices have been going up at some of the--the more well-established restaurants that offer full service.

Russ Roberts: Which is what you'd expect.

45:19

Russ Roberts: Now, a number of people have studied Seattle and found no impact. I know there was a Berkeley study in 2016, or at least a working paper.

Jacob Vigdor: Yes.

Russ Roberts: And, I'd be curious what you think of that work. But, more generally, there are many, many studies done in the last 10 years that find very little impact on employment. Now, they generally don't have data on hours--as you have. But they find, I would say, among a certain group of economists--wouldn't include me, but a certain group of economists, there is a view that within the current range of minimum wage increases we've observed it's something close to a free lunch. That, the demand for labor--or that, or those wage levels, is--a technical term, relatively inelastic. That is, it doesn't respond much, the employment level. And so we can use this tool without much consequence. You've come and found something I would say is different. Much more disturbing. And, I'm curious, one, what you think of those other studies, and what they think of yours.

Jacob Vigdor: Well, the Berkeley study in particular, it follows a common pattern in the literature, which is to do a study of the restaurant industry. And not necessarily the low-wage labor market. You know, we've been talking a lot about restaurants today. But, most of the low-wage work in the economy is not in the restaurant industry. So--

Russ Roberts: Which is confusing. Because, a lot of employment in the restaurant business is low wage. But that does not follow, then, that most low-wage workers are in the restaurant business.

Jacob Vigdor: Yes--

Russ Roberts: It's a subtle distinction, but it's important.

Jacob Vigdor: There are just as many low-wage workers in the health care industry as there are in the restaurant industry. The difference is that--you're right. It's a higher proportion of restaurant workers are low-wage workers. Because in the health care industry you also have doctors and nurses and people who--you've also got custodial staff, cafeteria staff. You've got all sorts of employees in the health care sector that are low paid. Anyway, I think that the Berkeley study of the restaurant industry--it's reliable as a study of the restaurant industry, because they are finding the same result that we found when we did our analysis of restaurants in Seattle. Namely that, overall restaurant employment shows no negative impact. There are just as many jobs in Seattle restaurants as we would have expected without the minimum wage increase. Now, there's an asterisk there, which is, we're talking about all jobs in the restaurant industry. Not only low-wage jobs. So, the Berkeley study used a data set that didn't give them the capacity to study low-wage workers specifically. Our data set allows us to do that. And, what we found is that if you look at low-wage employment in the restaurant industry, rather than overall employment, and if you look specifically at hours instead of number of jobs, you do find these negative impacts. And so, I think that one of the things we're picking up from our data analysis is that there are quite a few people in the low-wage labor market in Seattle who have kept their jobs. And so, if you are just counting up the number of jobs, it might look like it hasn't changed very much. But the difference is that they are seeing reductions in their hours. So, a reduction in hours is something that [?] Berkeley's study can't.

Russ Roberts: But, how do you reconcile that employment staying constant with the story you told earlier that busboys can't--there won't be any busboys: restaurants have found those ways to reduce employment; they don't have somebody chopping? Shouldn't there be fewer jobs in the restaurant industry, if those effects are important?

Jacob Vigdor: Yeah: the difference is that it's a growing industry. The number of jobs overall has stayed relatively steady because the number of restaurants overall is expanding, because of the general expansion of Seattle relative to other areas. So, basically, here's the way you want to think about it. Imagine a world where there's 10 restaurants and all of them employ some relatively highly paid kitchen staffs and relatively highly paid wait staff, and a busboy. The minimum wage increases and some of those restaurants sort of get rid of the busboy and have the customers bus the tables. But at the same time, the number of restaurants expands. And so, what you could observe in that situation is that overall employment in the industry stays relatively constant, but the amount of low-wage employment, if the busboy was the only low-wage employee to begin with, declines.

Russ Roberts: Yeah. And the proportion of low-wage workers of the total has gone down, would be the other way to look at it.

Jacob Vigdor: That's right. Yeah. So, if you ask the question, 'Are there still jobs in the restaurant industry in Seattle?' the answer is, 'Yes.' 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?' And there, all the data is pointing us to the answer that that is what has dried up here: the number of opportunities available where you can be hired with no prior experience.

51:13

Russ Roberts: So, that's disturbing, to me. The media reaction to at least the first reports that you've done was, I would call it kind of pyrotechnic. A lot of fireworks. There were people who said, 'Hah! This proves what I knew all along.' On all sides of the issue people found different parts of the elephant to hold onto to confirm their priors. Some people said, you know, 'It's really okay, because, as you said, employment hasn't changed that much overall. We're not going to worry so much about the hours or whatever it is.' But it did make quite a splash. What's that been like?

Jacob Vigdor: Well, it was a little crazy. 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. They had gone and they had talked to kind of third-party independent economists who had read the study and could comment on it. But then after that first round of careful studies, you got more media coverage where it was clear that the reporters and the columnists had not talked to anyone. They were writing things on the basis not of our paper, but on the media coverage of our paper. So it was like a game of telephone. So, and just like in the game of telephone you discover that the message that gets back to you is somewhat garbled compared to what you started with, I would see people writing about the study that were getting some of the fundamental details wrong. I saw one newspaper column that referred to our study as a Washington State University study--which, that is our rival over on the other side of Washington State--

Russ Roberts: shame on them--

Jacob Vigdor: It is not the U. of Washington. People were getting the details of our analysis exactly wrong. Our data limitations exactly wrong. And, I think that one of the things that we learned in working on this study and a sort of humbling life lesson, is that ultimately you can't control what other people say.

53:34

Russ Roberts: So, let's think about some meta-questions for a minute. And maybe you can provide some data on these questions. When we talked at the very beginning about what you did to try to control for what was going on in Seattle that was not related to the minimum wage, now that we've had the conversation for a while--people didn't hear and understand that, if the area is growing--and the number of restaurants would be growing a lot even if there hadn't been a minimum wage--there might be growing still after minimum wage but not as much. And the type of jobs available in those restaurants that are low-skilled would be maybe not growing nearly as much. 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." And someone could argue--and I often do--that's just a wild attempt. That's the best you can do. I understand, you've got to do the best you can, one could argue. But the question then becomes: How reliable are these conclusions, even when they, in this case, confirm the way I'd like to look at the world? And I--I wonder--when I hear results like these, one of the things I always want to know is: How many regressions did you run? How many times did you tweak and fiddle with the variables that try to control for things? How robust, how sensitive were the results to these kind of changes? And, how many of the findings ended up on the floor that I don't get to see because they didn't make it into the final report, but you somehow convinced yourself that they were not reliable or not representative. Give us some of the flavor of that--the kitchen.

Jacob Vigdor: Yeah. So, there were a number of things that we did--because, of course, the first people that we have to convince are ourselves. 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. We used entirely different methodology called Interactive Fixed Effects, which showed largely the same results. I mentioned a little while ago that we had to sort of pick a threshold and say: A low-wage job is defined as under $19 an hour. We tried different versions of the analysis, trying anything from $15 to $25. The results were consistently pretty similar. 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. We tried looking at the restaurant industry specifically: there is more information in the paper about industries that had these funky patterns that we had to exclude from the analysis because we think there was something else going on. But, with this paper, it's really kind of a 'what you see is what you get' endeavor. We were trying to commit ourselves to writing down a specification before we conducted the analysis. Which is considered to be sort of a best practice in a lot of empirical research these days--is to not go fishing for a particular set of results, but sort of say, 'Okay: this is the regression, and I am not going to go and run a hundred different regressions and just pick the one that shows the results that I prefer.'

57:13

Russ Roberts: What's going to happen going forward? Are you continuing to analyze--because, I suggested that--you know, and a short period of time, to me, we can always debate what a short period of time is, but is it 6 weeks? is it 6 months? is it 6 years? 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. Especially when the minimum wage is continuing to increase. 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. But I would expect some of these effects to get larger. Are you going to continue to measure these changes going forward?

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. A large part of our confidence in the results really stems from timing. We see things change immediately when the minimum wage goes up. And that's what increases our confidence that what we are observing is the impact of the minimum wage. If something happens in Seattle 5 years from now--suppose that 5 years from now all of a sudden there's a collapse in low-wage employment--is that the delayed impact of the minimum wage? Or is that the result of something else? It just becomes much harder to tease that out further down the line.

Russ Roberts: Yeah. If Amazon were to not just open a second headquarters but close all of its headquarters, that would have an impact that would make it very hard to measure.

Jacob Vigdor: Yes. Yes. So, there's an argument that actually goes the other way. So, it's possible that in the long run, businesses will find more ways to adapt. But here's the counterargument. The counterargument is: Once the businesses in Seattle figure out ways to economize on labor, those methods will be transmitted to other locations. 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. And this is actually the story--I mentioned a little while ago the conversation I had with the CEO of the Washington Restaurant Association. And this was his story. His story was, 'Minimum wage increases force businesses to think up new ways to economize on labor. Once they've thought them up, those business practices filter out into other parts of the country.' 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. But the reason for the dissipation is that in the long run, we are going to see across the board the number of opportunity for low-wage workers declines, because all the businesses have adopted these changed practices to cut down on their use of low-wage labor.

1:00:42

Russ Roberts: Yeah. The only problem with that theory--I mean, I'm sympathetic to that point, obviously. But in general, people don't like to bus their own tables. And so, restaurants that try to "adopt this practice" as a way to save on their labor bill, even in areas where there isn't a minimum wage, are going to find they are going to struggle to attract clientele and customers because other restaurants won't do it. And so, for me, it reminds me of this--one area of change we haven't talked about is technology and automation, which is another way you can cope with an increase in labor cost. And I have always argued that--you know, the minimum wage speeds up the substitution of capital for labor. Speeds up the substitution of robots and artificial intelligence and other forms of economizing at the expense of labor. And that's--there's no reason we should want to do that. It's not necessarily--some people say, 'Well, that's a plus, because we can figure out all these new techniques.' Yeah, it's a plus, except it hurts people with low skills. It's a horrible--there's no--we don't want to encourage that. It's not a good thing. So, those are not free to the employer, those savings. They come at a cost, sometimes. Obviously, if I'm indifferent between bussing my own table and not; if I'm indifferent between being greeted by a person versus opening a mechanical door where some food is waiting for me, then those things will happen. I am indifferent between somebody automatically deep-frying--a robot deep-frying French fries and a human being, because I don't even usually see it. And it doesn't affect--it may even improve the quality of my French fries, which means those things will happen and spread out through the country. But, so I think that that kind of argument, that the long-run effects are going to be hard to measure: I take the general point. But I think in specifics it may not always be the case.

Jacob Vigdor: Yeah. Yeah. It's hard to know, for sure. One story that I like to tell the people, particularly when I'm talking to general audiences, about minimum wage: I ask people about the Starbucks App. And I will ask an audience, 'So, who has the Starbucks App on their phone?' And, especially in Seattle, there's always somebody in the crowd. And then I ask them, 'Well, what's your experience with the Starbucks App? How do you like it?'

Russ Roberts: Explain what it does, Jake, for people who don't have it.

Jacob Vigdor: The Starbucks App is, basically, you take your phone, and you have an app, and you can order whatever kind of fancy coffee beverage you want. And it will be available for pickup at a Starbucks of your choice. 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. What you do is you open up the app, you place your order, you pay for it right there in the app. And then there's just a cup there that has your drink inside. So, it saves you time. And it's--and I think that for most users, at least in my highly unscientific polling, people are really happy with the app. It provides the customer with a really good experience. And it is a big labor-saver. Because if there's an order placed with the app, the person at the cash register who would ordinarily have to take the order, have to take payment, have to return change or provide a receipt or something like that, that is all automated. And the best part of it, from Starbucks's perspective, is it's not as though there's a touch screen that Starbucks has to maintain. The touchscreen belongs to the consumer. And so, if we have innovations like this that, a). save labor, and b). are really popular amongst customers, then, you know, I think that you can envision a future where there is more general adoption of these kinds of technologies.

Russ Roberts: And the point being?

Jacob Vigdor: The point being that, if necessity is the mother of invention, then a higher minimum wage represents the necessity. But once you've got the invention, the invention can filter out to all parts of the country. Even the places with a low minimum wage. Because, if I've got the Starbucks App in Seattle, and it's helped the Starbucks here in Seattle cut back on their labor headcount, then when I go out to Idaho, where they've still got the Federal minimum of $7.25 an hour, I can use that same Starbucks App. And it's going to help the Starbucks in Idaho enjoy the same kind of labor savings.

1:05:43

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. And eventually will be also in Seattle. So, it's a--the brunt is--it doesn't mean these innovations are going to mean more profit necessarily for the corporation. But it will mean less employment for people of low skill. And I raised a similar question--I thought you were going to raise a moral question: whether it's moral to use the app. I always wonder if people who re-use their towels in the hotel or ask for no room service, housekeeping service, because they want to help the environment and not turn the towels and the sheets over, realize that they are reducing the employment for low-skilled, relatively low-skilled people who do that. Who make up the beds and pick up the towels and take them to the laundry. And, normally, we'd say, 'Well, that's how the standard of living improves,' in the case of the App, because it's going to make it cheaper to provide a cup of coffee. Which means we have more money to spend on other things. Which means that those other things can now expand. And those other things expanding will lead to some employment opportunity for people with low skills. And so, the long-run effect of this creative destruction is pretty good. And in the case of the towels, we get a cleaner environment. It's true there's lower-skilled workers, but at least they have, there's going to be something else going on out because the hotels now will lower their wages, their cost of the room, etc., etc., etc. The challenge, though, is that we are just making it harder for some people to get on that ladder. And I don't think that is a good thing.

Jacob Vigdor: Well, I think that the message--

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 it makes it harder for, say, the educational process to compensate for that. It's not doing a good job, anyway.

Jacob Vigdor: Yeah. So, I think--I've talked to a lot of people from across the spectrum. And I'd say that there are not a whole lot of people who express optimism about the future of low-wage employment. I had a political operative from the Seattle Mayor's office come visit me a couple of years ago. This particular staffer from the Mayor was wondering if I would be willing to sort of go out in public and advocate for a higher minimum wage. And, I responded by saying, 'Look, that's not my job. I'm not an advocate. I'm a researcher.' And I mentioned to him that our research was actually showing that there were some potentially adverse impacts of Seattle's minimum wage. And he responded to me by saying, 'Well, in the long run, aren't these jobs going to go away anyway?' And so, this is coming from someone whose job description is to be a minimum wage advocate. And so, I think that there's this sense that these jobs are not long for this world. And the real goal is to ensure that while they're still here, they pay enough that someone can make a living off of them. And, if the policy interventions that we use, sort of hasten the demise of the low-wage job, then that maybe doesn't bother people so much? Because I think you just have to say to yourself, 'Well, the technological innovation, we'll find a way to get these people into new lines of work.' Um, and we'll find--maybe we'll figure out how to better train people for a wider variety of high school jobs. And, you know, just sort of look through economic history and we find lots of examples of technologies that come along, and just completely eliminate low-skilled job categories. You know, mechanization of agriculture. That was a big deal. And it displaced a lot of people. But, these days, you don't find a lot of advocates out there saying, 'We need to send everybody back to rural areas to go engage in manual labor on farms.'

Russ Roberts: Yeah. As our standard of living climbs, there are not a lot of blacksmith jobs in America any more. That was a job that low-skilled people used to be able to do, or just a strong person who didn't have certain abilities elsewhere. And we've talked--

Jacob Vigdor: There's another interesting thing about the America low-skilled workforce, which is that it has a large number of immigrants.

Russ Roberts: Yeah.

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. Most of those families are headed by someone born in a foreign country. The long-run trends around immigration are such that the number of immigrants to the United States has kind of stabilized. And it's even maybe declining a little bit, when we look at low-skilled immigration. So, one of the factors that may help us transition to a world where there is less low-skilled work is the fact that, particularly in a country like the United States, our low-wage workforce, which for many years was fueled by immigration--as immigration starts to wane, the supply will be reduced around the same time the demand is reduced. So, maybe this becomes a natural transition.

Russ Roberts: Obviously people differ in how they view immigration. It's a hot topic. A lot of heat right now.

Jacob Vigdor: Yes.

Russ Roberts: But, from my perspective, while it's true that low-wage workers coming from elsewhere don't do great when they get here, they often do great eventually. And people risk their lives to be able to be poor in America. Or they have, historically. And if we close that off, either through our immigration policy or our wage policy, I think that would be a tragedy.

Jacob Vigdor: Yes. Well, the good news about immigration is that even as immigration has declined, I mean, one of the, the demography is a huge factor in determining immigration flows. 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. The birth rates in Mexico have declined to the point where their population is stable. And so I don't think that we are ever going to see the kind of immigration from Mexico that we had in this country prior to about 2007.


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