In April of 2015 the city of Seattle enacted an unprecedentedly large increase to the city’s minimum wage and as an empirical analyst in the general vicinity I couldn’t help but go out and make some data driven predictions regarding some of the effects of this groundbreaking bit of public policy. The results of said research are of course published on this site for any who are interested.

Today, after roughly a year and a half it seems almost overdue time for me to take a look at what has actually taken place since then and evaluate both the preliminary effects of the policy and also the accuracy of my own predictions. While the total effects of the new policy won’t be completely measurable for several years to come thanks to the 3 year phase in of the total wage increase, a preliminary look will provide policymakers and the generally curious both with at least some indication of the potential effectiveness of enacting significant upward increases in wages.

In order to properly evaluate the effectiveness of the change to wage policy I take a look at a number of different statistics that would potentially be influenced by the dramatically higher wages in an attempt to get a holistic look at the effects of the policy.

I’ll start with the variable that piqued my curiosity in the first place: the unemployment rate. Looking back at the now historic data from around the time that the increases were first enacted we see a spike in the unemployment rate from 3.3% in April to 4% by June. This increase is not reflected in the national unemployment rate which continues a trend of steadily falling. This spike is not immediately reflected in that Washington state unemployment rate either, though the state’s rate does echo the spike several months later rising from 5.1% to 5.7% from August to September. After the initial change the city-level unemployment continues to rise until February of this year.

To take a look at a graphical view of a comparison of city, state and national unemployment history check out my Tableau viz in the following link. Unfortunately I am having technical difficulties in imbedding it here on the actual page, which was my original intention. I apologize for any inconvenience.

https://public.tableau.com/views/UnemploymentComparison_1/Dashboard1?:embed=y&:display_count=yes

While the 0.6% drop in employment does translate into a loss of roughly 2,500 jobs within the city, it should be noted that this increase is not large enough to constitute a statistical outlier. Meaning that it isn’t unheard of for employment to change this drastically in this small amount of time, in fact we can see similar volatility in 2013. As far as my previous predictions go, I had come to the tentative conclusion that the three year change in unemployment would be a 2% increase. After one year the increase is less than a quarter of that, which is a good sign for workers. In this case I’m perfectly happy to have been a little bit wrong by over predicting the elasticity of labor to price changes.

The next factor to take a look at in order to assess the overall effects of the changes is cost of living. Basically we want to see whether or not the new laws are having an inflationary effect on prices, and if so to what extent. In order to gage the amount of inflation that may be occurring I look at not only the consumer price index, but also the fluctuation in housing rental prices specifically. The reason that I narrow the focus of my study here is that housing rents tend to make up a fairly large amount of one’s cost of  living, especially for low income groups who may be supplementing other expenses such as the cost of food with welfare assistance programs. Therefore one’s utility is being disproportionally effected by changes in this component of cost of living and this justifies a closer look.

All that said what has inflation actually done since the new policies were enacted? The CPI growth for the city of Seattle has slowed from 1.8% in 2014 to 1.4% in 2015, compared to a slow from 1.6% to 0.1% for the nation in that time. For context the growth rate in the CPI for Seattle and the U.S. as a whole has averaged at 3.99 and 3.85 respectively since 1960. As measured by the CPI the cost of living has tended to increase slightly faster in Seattle than in the country as a whole since the late 90’s, and a difference in CPIs of 1.3 isn’t a statistical outlier, so this isn’t anything particularly telling. This is only one data point, which is not enough to get a clear picture. If over the course of the next two years the CPI in Seattle maintains much higher growth than the national average, this will be much stronger evidence that this is an effect of the wage policy.

As for change in the median price of housing rentals, the monthly increase since the wage increases were implemented has fluctuated between 0.08% and 1.5%, but the average increase has been roughly double what it was before the wage increase at 0.84%. Statistical testing tells us that this is a significant change at the 5% level. This is somewhat stronger evidence that the new wage laws are affecting the cost of living within the city, but again we won’t have the whole picture for several more years when the policies have been completely phased in.

Overall the picture that is painted here is that while the cost of living may be increasing faster since the new wage laws were enacted, the additional 0.4% increase is completely washed out by the so far over 10% increase in the minimum wage, meaning a rise in real wages for low wage workers.

Another statistic to look at in order to gage the effectiveness of the new laws is the poverty rate, which is another good measure of whether or not the new labor laws are achieving their intended goals. This variable is also reported on a yearly basis rather than monthly, at least for the city of Seattle, so again we only have one data point to work with for the time being, but this is still a potential glimpse of things to come. In 2015 Seattle’s poverty rate increased to 14.5% from 14% in 2014. Whereas the U.S. poverty rate fell from 14.8% to 13.5% during the same period.  The poverty rate for the state of Washington as a whole also dropped from 13.2% to 12.2% during this time period, which rules out wider statewide trends being the driving force behind the changes in Seattle’s poverty rate. The change in Seattle’s poverty rate constitutes a 3.5% increase, which is a much more drastic change than can be explained by either the increases in unemployment or cost of living. This means that there is either something else going on here, possibly migratory, or that the workers who are employed are seeing cuts in hours worked large enough to cause a net decrease in income. Changes in city population are a feasible explanation; the city population did increase by an estimated 2.4% from 2014 to 2015. In order for this change to account for the increased poverty rate roughly 35% of these new residents would have to be below the poverty line. This is possible, though somewhat unlikely, as it means that the poverty rate of new residents would be double that of either the city, state or nation as a whole. Seattle would have to be a very attractive place for the impoverished to want to move to in 2014.

In summary since the new wage laws have taken effect unemployment has increased, but happily not by as much as I had predicted in my previous study, cost of living has increased some, but not proportionally with wages, and the poverty rate has gone up, despite national and statewide trends in the opposite direction. So what does this mean about the effectiveness of the policy? At this early stage it seems that it has been a success at raising real wages of low pay workers, at the expense of relatively few jobs lost, however the poverty rate has risen despite this – an effect that is likely influenced by a number of factors and can’t be attributed directly to the wage policy. Even so, the mere fact that poverty has increased in Seattle where it seems to be declining elsewhere is certainly not a hopeful sign for proponents of drastic increases to minimum wages.

A further interesting area of study would be to look at the breakdown of Seattle GDP wealth distribution (comparing the value of total production to how much is paid out in wages as opposed to business owners) before and after the policy changes. This would be another good measure of the effectiveness of new policy as a tool for wealth redistribution, which seems to be the spirit of the law. Unfortunately this economist was unable to dig up data on these city level statistics at this time.

For this project my statistical tools of choice were Stata and Microsoft Excel, supplemented by graphical analysis using Tableau. I utilized data from the U.S. Census Bureau, the Bureau of Labor Statistics, the City of Seattle, Zillow, the Center for American Progress, and deptofnumbers.com, as well as published written works by the University of Washington and the Seattle Times.