Seattle attempts to repeal law of supply and demand and fails

John Steele Gordon:

The City of Seattle, as blue as they come, raised its minimum wage in 2014 from $9.47 to $11.00. This year, it went up to $13.00 and will reach $15.00 by 2021.

The first hike, a 16.1 percent increase, did not seem to have measurably adverse effects, probably because the Seattle labor market has been very strong of late. But the second one (18.2 percent) did. According to a study by the University of Washington—commissioned by the city of Seattle—the second hike caused a reduction in hours worked of 9.5 hours per worker per month, causing a net loss of income for minimum-wage workers of $125 a month. Thanks a lot, Seattle.

The city knew this study was coming and, rather than reassess the situation, asked the University of California at Berkeley to do a quickie study to refute it before it was publicly released. But the UW study is far more robust. Only a politician would give the UC Berkeley study the time of day.

That raising the price of a commodity, such as labor, causes a drop in demand should not be any more surprising than finding that a rock dropped from a roof accelerates towards the ground at 32 feet per second per second, net of air resistance. The law of supply and demand is as much the fundamental law of economics as gravity is of Newtonian physics. And it takes only one exception to kill a scientific law. If the law of supply and demand does not apply with regard to minimum wages, then economics is a black box. We know nothing about it.

But while no legislative body would order the law of gravity to be suspended during, say, rocket launches, they are perfectly happy—King Canute-like—to order the law of supply and demand to stop operating to suit their political convenience. And political reporters—most of them as ignorant of economics as those born blind are of art—are perfectly happy to ignore the fact that that is what they are doing.
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Venezuela tried to repeal the law of supply and demand on a much grander scale and failed more spectacularly, but Seattle is not immune from the effects of the law no matter how much they try to torture the data.  As the rate goes up, not just hours will be reduced but automation will speed the decline in entry level jobs.  The people most hurt will be the ones Seattle was trying to pander to.