Minimum wage effect? DC restaurants lost more jobs since January than any 6-month period since 2001 recession
AEIdeas
Cities and states around the country that are considering a hike in their minimum wages to $15 an hour might want to take a look at how that’s working out in the nation’s capitol. Despite what we hear from unions, the Fight for 15 crowd, and other minimum wage advocates, the evidence from DC’s restaurant industry – an industry often considered as “ground zero” for minimum wage effects – demonstrates that demand curves for low-skilled workers actually do slope downward.
New BLS data for restaurant employment in July for both the District of Columbia (city only, see dark line above, data here) and the surrounding suburbs in Virginia and Maryland (full DC MSA data here, the light blue line shows the MSA minus the city of DC) are displayed above and tell the story pretty clearly. Since the DC minimum wage increased in July 2015 to $10.50 an hour, restaurant employment in the city has increased less than 1% (and by 500 jobs), while restaurant jobs in the surrounding suburbs increased 4.2% (and by 7,300 jobs). An even more dramatic effect has taken place since the start of this year – DC restaurant jobs fell by 1,400 jobs (and by 2.7%) in the first six months of 2016 between January and July – that’s the largest loss of District food jobs during a 6-month period in 15 years. Perhaps some of those job losses were related to the $1 an hour minimum wage hike on July 1, bringing the city’s new minimum wage to $11.50 an hour. In contrast, restaurant employment outside the city grew at a 1.6% rate in the suburbs (and by 2,900 jobs) during the January to July period.
Being able to compare restaurant employment in the District of Columbia following two recent minimum wage hikes (to $10.50 an hour on July 1, 2015 and $11.50 an hour on July 1 of this year) to restaurant employment in the surrounding suburban areas of Virginia (where the state minimum wage is $7.25 an hour, and 37% below the District’s) and Maryland (where the state minimum wage rose on July 1 to $8.75 an hour, along with an increase to $10.75 an hour for Montgomery County, and a scheduled increase to $10.75 an hour in Prince George’s County) provides a natural experiment to test for the employment effects of DC’s minimum wage law.
Bottom Line: While it might take several more years to assess the full impact, the preliminary evidence so far suggests that DC’s minimum wage law is having a negative effect on staffing levels at the city’s restaurants. At the same time that suburban restaurants have increased employment levels by nearly 3,000 new positions since January, restaurants in the District have shed jobs in five out of the last six months, with a total loss of 1,400 jobs during that period (an average of nearly 8 jobs lost every day). The last time DC experienced restaurant job losses in five out of six consecutive months was 25 years ago in 1991, and the last time 1,400 jobs were lost over any six-month period was 15 years ago during the 2001 recession. If the restaurant industry in the nation’s capitol, with one of the highest costs of living in the country, is stumbling on the road to a full $15 an hour minimum wage in 2022, just imagine the troubles lower-cost cities like Minneapolis and Cleveland would have adjusting to a $15 an hour wage. Further, if the DC restaurant industry can’t easily absorb an $11.50 an hour minimum wage without experiencing the greatest job losses over the last six-months than in any comparable period in 15 years, just imagine the troubles adjusting to further labor cost increases of more than 30% (and $3.50 an hour) for minimum wage workers in the coming years to the full $15 an hour.
As the Wall Street Journal commented recently, “Few ideas have been so thoroughly dismantled by reality as minimum-wage laws, which price some jobs out of existence and some workers out of jobs.” The evidence so far suggests that DC’s $15 an hour minimum wage experiment is already undergoing some major dismantling, with the stark reality that more than 1,000 restaurant workers have apparently been priced out of their jobs just this year since January.
Mark,
Can you have a look at the links? I think you included (more or less) twice the same data link.
Thanks
Yes, both links show the MSA data.
this may be too much of a pain to be worth doing, but if you have the statistical tools handy and can easily import data, it might be really, really useful to get a confidence interval/p value here.
if we could, for example, say that the shift in min wage caused this drop with a p < 0.05 vs control, then this gets really hard to refute.
i look at a lot of data like this and just eyeballing it, i would be p is less than 0.02.
Job loss is only one of the results of minimum wage laws. Another is a decrease in the demand for the least qualified workers.
Thus, even if the total number of jobs lost is not significant, the number of job opportunities for the young, the under-educated and minorities may well be.
While I presume this is a more difficult effect to measure than job numbers, I believe it to be a more important effect, since low paying jobs are the means of entry into the economy for the most disadvantaged.
I agree with 95% of this comment. The one posit with which I disagree is you grouping minorities with the least qualified workers. I’d suggest that in the future your argument might be more well received and the merits of the actual point (which again I agree) can be the primary focus if you stated “the young, unexperienced, and under-educated,” as those adjectives and not status as a member of a minority group are the traits that lead to an employee’s status as least qualified.
Lonnie
Of course many of the young, uneducated and inexperienced are members of minority groups.
For example unemployment among blacks who fit that description is twice as high as among whites.
Lost in the usual talk about raising the minimum wage to $15/hr is the effect on jobs that paid more than the old minimum wage but less than the proposed new minimum wage.
The wages for these jobs would rise to not just the new minimum wage, but to some wage higher than it (otherwise, why invest time/money in garnering the education or skills required to hold these jobs?). Did those employers simply eat the costs associated with higher wages? Did they hire less than they otherwise might have? Did they, if possible, outsource and/or move their services to another area? Etc. It might be a bit exhaustive to do, but I’d like to see someone run the numbers to find out if there were any appreciable changes in the hiring rate/employment numbers for these types of jobs within the DC area.
I do not understand why the federal government can take away the right of an employee to take a job whose wages are less than an arbitrary amount set by the government.
When I was a youngster in my mid-teens, I would take on almost any kind of job for almost any kind of wages, sometimes these wages were close to zero. As I put on a few years and had more experience, I could ask for more.
If I were shut out of these jobs, I would have never picked up the valuable experience seeing how businesses are run from the inside not to mention developing my skills and understanding what it would take to make an employer want to pay me more.
Progs don’t care that few people are working. In Seattle, the communist on the city council admitted publicly that she was aware that “some” people would lose their jobs, but she said that that was okay since those who are still working will be earning a “living wage.” Move along; nothing to see here.
The DC-only series: https://fred.stlouisfed.org/series/SMU11000007072200001SA is a very noisy data series, and if you use the ‘Edit Graph’ feature to show a year-over-year percentage change, or even a numerical y-o-year change, you notice there’s nothing particularly notable about the recent change.
John: That’s absolutely NOT true.
For the percentage year-over-year change, the most recent change of 1% is the lowest annual growth rate in almost 7 years, since October 2009 at the end end of the Great Recession.
For the year-over-year change in jobs, the most recent change of 500 jobs is the lowest annual change since October 2009 at the end of the Great Recession.
So what? I also see similarly small y-o-y growth from spring 2006-spring 2007, not to mention a prolonged period from about mid-1995 to mid-1999 which mostly featured *negative* growth. Neither of those periods coincided with a recession. It could mean anything, including nothing.
Mark, you aren’t really using BLS data here. You are using BLS not-seasonally adjusted data that is then seasonally adjusted by the St. Louis Fed. BLS intentionally doesn’t seasonally adjust these series because of an inability for X-13 ARIMA to properly pick up seasonal patterns — the Fed does it as a pseudo experimental series. Trying to come up with any insight into policy outcomes using these data is specious at best.
Just looking at the St. Louis FED site, employment in the restaurant business in DC in June of 2015 was 50,300. In July of 2016 employment on the same graph was 51,000. I think you need to do some anova work on this set of numbers, personally. And I second the call to analyze the seasonal adjustment applied. According to the FRED site it is experimental.
The year-over-year growth in NSA DC food jobs through July 2016 of 0.98% is the lowest annual growth in almost 7 years, going back to Oct. 2009 at the end of Great Recession. It also compares to +4.12% YoY growth in food jobs (NSA) in the DC suburbs over the same period.
Funny you chose the restaurant industry. Where tipped wages are still capped at $2.77 per hour.
Also funny you chose to leave the increase from $8.25 to $9.50 that happened in 2014. Almost like you were intentionally leaving out information that didn’t support your cause. Oh sorry, I meant “Exactly like”.
Comparison of the growth of restaurant jobs in the 68.3 square miles of D.C. with growth across the 1400 sq mi (or 5.5K sq mi?) of developing urban and suburban areas is also likely not appropriate. The D.C. market will go through more stages of saturation than the surrounding area. Expansion will require gentrification of new neighborhoods which an will likely be associated with higher failure rates accompanying the moves into neighborhoods likely not yet able to support the new restaurants.
Interesting article and I suppose as good a data source for employment as any out there, if not better; the BLS stats. Our businesses are involved in one aspect of hiring across the DC region. We anecdotally see lots of demand for employees in the Front of House (mostly bartenders), especially this Spring/Summer. More than we’ve seen in years. Very striking. If you look at the data over the long term, both within DC and in the metro region, food and beverage employment has strikingly soared since the recession. Remarkably so. The data within DC relative to the first half of 2016 could be the result of MANY factors. One could be that after incredible growth of restaurants bars in the last several years there is fallout in the industry. It might not be that the salaries are going up too high. It could be saturation in the restaurant world is catching up to the several thousand of new restaurants in the region since just the last few years….plus existing restaurants are closing as they face incredible rent hikes.
Interesting data…..but the analysis is WAY WAY too political, and it simply doesn’t try to relate to the total number of establishments open, and opening, and closing.
I’d study the entire phenomena a lot more thoroughly and closely before I make such a politically incendiary/ and completely political judgement. Its far more complex than your suggestions.