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Can Seattle Survive a $15 Minimum Wage?

Jason Russell | 05/06/2014 |
Wikimedia/CC

With Seattle’s agreement to raise the city’s minimum wage to $15 an hour, Seattle’s minimum wage will be one of the highest in the nation, matching the one approved by voters in 2013 in nearby SeaTac, Washington. The new minimum is a 61 percent increase from Washington State’s current minimum wage of $9.32, and will be indexed for inflation. The phase-in schedule depends on the number of employees in a firm and whether or not the firm offers health insurance, but for some the minimum wage will rise to $15 an hour as soon as 2017.

Of the 576 metropolitan and nonmetropolitan areas tracked by the Bureau of Labor Statistics, Seattle has one of the highest hourly median wages. Both Seattle-Bellevue-Everett (ranked 13th, with $22.43) and the overlapping Seattle-Tacoma-Bellevue area (ranked 18th, with $21.72) beat the national hourly median wage, $16.87. As a result, the negative effects of a $15 minimum wage are not as bad as they would be in Brownsville-Harlingen, Texas, which has a median hourly wage of $10.81.

With a $15 minimum wage floor, Seattle can say goodbye to many of its low-skilled workers. The city government must have decided it can do without them because of the city’s high-skilled workforce - Amazon.com and Nordstrom are two examples of corporations headquartered in downtown Seattle, in addition to several medical and biotechnology firms. Low-skill jobs remaining in the city will see increased competition, with medium-skilled, experienced workers winning out over low-skilled, mainly young, workers trying to reach the first rung of the career ladder.

Those working in restaurant, personal care, or building maintenance jobs will be most affected. These three occupational categories each have median hourly wages below $15.00 an hour, and comprise nearly 14 percent of employment in the Seattle-Tacoma-Bellevue metropolitan area (not to be confused with Seattle proper).

Workers aside, customers in Seattle will undoubtedly be affected. The Congressional Budget Office estimates that an increase in the federal minimum wage to $10.10 an hour would burden the U.S. private sector with $15 billion in additional costs. More often than not, these costs get passed on to customers in higher prices. Downtown Seattle workers should expect to see an uptick in the price of lunches and after-work drinks.

A telling case study of minimum wage effects occurred last week in New York City. The Restaurant Opportunities Center, a labor union in all but name and tax treatment, organized a restaurant week to recognize eateries it deemed to have satisfactory employment practices. The average price of a burger and fries at the participating restaurants was $20.50. Many low-wage workers would prefer the McDonald’s Dollar Menu or a $5 Footlong at Subway, especially when dining with their families. A family of four could enjoy $5 Footlongs for $20 total at Subway, whereas four burgers at an ROC-approved restaurant would bring the bill to $82.

Still, these negative consequences are not coming soon enough for some. Kshama Sawant, a member of the City Council and the Socialist Alternative Party, opposes the mayor’s plan because the drastic increase will not occur quickly enough. “Every year of a phase-in means yet another year in poverty for a worker,” she said in a press conference last week. 

Sawant’s logic makes one wonder why minimum wage advocates would stop at $15 an hour. If the minimum wage can lift people out of poverty without harming anyone else, it makes sense to raise the wage to $24.30 an hour, the average for nonsupervisory employees, or higher. Of course, this is unrealistic. Minimum wage hikes raise the cost of employment and discourage hiring. Low-skill workers who need employment get priced out of their jobs. These effects occur to some degree whether the hourly minimum wage is $25 or $5.

Seattle shows why Congress does not need to raise the federal minimum wage. States and localities with different costs of living are coming to their own solutions on the minimum wage without any action from Congress. Seattle can always reverse course, but it is harder for Congress to change its laws.

In a diverse, widespread nation where the median hourly wage can range from $10.81 in one locality to $37.59 in another, a one-size-fits-all federal minimum wage is extremely detrimental. Though the effects of a local minimum wage hike are harmful, a national minimum wage hike would be disastrous.

 

Jason Russell is a research associate at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.
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