DC’s $15 Minimum Wage: What will its impact be?

Back in June 2016, the DC Council and Mayor approved the Fair Shot Minimum Wage Amendment Act of 2016. This bill stipulates that the DC minimum wage (currently at $11.50) will increase to $15.00 an hour by 2020. A recently completed study analyzes the potential effects of the higher minimum wage on DC.

Based on this legislation, the minimum wage will increase per the timeline below. (Note: we estimate an annual 2.3% inflation adjustment for the previous minimum wage policy beyond 2016.)

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Who is affected by the higher minimum wage?

We estimate that of the roughly 750,000 total workers in DC proper (excluding self-employed and proprietors), 150,000 will be impacted by the higher minimum wage. For DC residents who both live and work in DC (about 345,000 people), we predict that about 61,000 will be impacted by the new policy.

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How are DC residents affected?

Most of the impacted District residents (those earning between $8.25 and $18) will see an increase in their wages over the baseline of up to $5,100 in 2021 (one year after the policy hits the $15 per hour mark). About 1,200, or 2% of the 61,000 residents, however, may face job loss by 2021. This number increases to (and caps out) at around 2,000, or 3.4%, by 2026.

For all DC residents impacted by the minimum wage policy (including those who lose their job), net total earnings in the city increase by about $140 million in 2021.  There’s about $190 million generated in new earnings by the higher wage, but $40 million is offset by those who lose their jobs and another $12 million is lost by those earning above the minimum wage who see a slight slowdown in subsequent wage growth as employers try to shift some of the new, higher labor costs.

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Main takeaways

This policy, which first impacts DC on July 1st, 2017 (when the minimum wage rises to $12.50), affects nearly 20% of all workers in DC. While 2-3% of DC resident workers may experience job loss, the remaining residents are expected to see wage gains of up to $5,100 by 2021.

What’s interesting is that almost 2/3 of the increased earnings produced by this policy in 2021 go to non-DC residents who work in the District. Yet, over 80% of the job losses are absorbed by DC residents by 2026. This is due to the ‘commuter effect’ which we’ll talk about in our next blog.

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A secondary finding of the study is that over 60% of the 61,000 affected DC residents are EITC recipients and nearly all of them will see a reduction in their EITC benefit. However, their higher wages will leave them better off on net. We also looked at the effects on businesses (i.e. costs, competitiveness, etc.) across some of the most impacted industries in DC. Both the EITC and business effects will also be discussed further in upcoming blogs.

What exactly is this data?

We used data from the BLS (Occupational Employment Statistics 2014), Census (American Community Survey), and DC income taxes to model what the effects of this bill may be. From the OES data we identify, in each of the 800 occupations they detail, the number of workers in the District who are likely subject to the minimum wage and those that would benefit. Using ACS data, we’re able to estimate the number of DC residents who are affected.

We define “affected” as workers who earn between $8.25/hour (the minimum wage in 2014, the year the BLS data is from) and $18/hour. We use $18/hour as the upper bound to account for the “spillover effect”, where workers who earn just above the new minimum wage of $15 also see an increase in wages. For example, if a shift supervisor at a restaurant was earning $16/hour while a hostess was making $12/hour, when the minimum wage raises the hostess’s earnings to $15/hour, it is likely that the supervisor would also see a wage increase in order to prevent just a $1/hour difference in wages between the two positions ($16 v. $15). The supervisor may not get the same $3 increase in wages that the hostess received, but there would still likely be some increase in the supervisor’s wage.

Impacted Groups: All DC Workers DC Residents
Those earning $15 and below (directly affected) ~115,000 ~47,000
Those earning $15-18 (spillover) ~35,000 ~14,000
Total People Affected ~150,000 ~61,000