A study on Seattle's minimum wage used high-quality data that also limit what kinds of analysis are possible.

The UW study’s strength: Good data on low-wage workers
The major contribution of the new UW study to the minimum wage literature is its use of unusually high-quality labor market data collected in Washington State. Most prior research on the minimum wage uses either payroll data on employment and total earnings or highly imperfect survey data on hourly wages and hours worked.

Because Washington is one of the few states that requires payroll data reporting hourly wages and hours worked, the UW team can focus on the slice of workers with wages close to the minimum wage. They also can estimate the effect of the minimum wage on hours worked rather than just the number of workers employed.

Although this distinction seems trivial, it matters a lot. Because much of the adjustment to a new minimum wage may come through reduced hours rather than fewer jobs, these data advantages are an important part of the new study’s appeal.

The UW study’s weakness: Problematic comparison groups
The method employed by the UW study to estimate the effect of the minimum wage raises questions. To get at the effect of the minimum wage, Jardim and her colleagues need to compare what happened to workers in Seattle with the outcomes for a group of similar workers outside Seattle that did not experience the minimum wage increase. They used two comparison groups:

  • Workers in the portions of King County that exclude Seattle
  • Workers in the rest of Washington State

Both comparison groups were statistically adjusted using standard methods to make them more comparable with workers in Seattle.

The problem arises in that the city of Seattle and its outlying suburbs are likely to experience different employment trends and respond to economic fluctuations in different ways. These differences are magnified when counties that are even further away from Seattle are included in the comparison group.

Some of these differences can be accounted for through statistical adjustments, but many of them cannot. It’s possible that Jardim and her colleagues are picking up on the differences between large cities and suburbs rather than the actual effect of the minimum wage.

 

Read the source article at Urban Institute