A recent study of Seattle’s $15 minimum wage ordinance suggesting the second phase of the pay hike cost the city 5,000 jobs may give pause to other cities considering similar proposals. However, with higher prices for consumers accounted for, the overall effect on the city’s economy could be even worse.
In 2014, the Seattle City Council voted to raise the local minimum wage to $15 an hour, albeit in gradual, annual phases. In 2015, it was increased from $9.47 to $11 per hour, then to $13 an hour in 2016.
The study conducted by six University of Washington professors found the second phase of the wage hike the most economically harmful, using unemployment insurance data from Washington’s Employment Security Department (ESD).
Not only had it cut low-wage workers’ hours by around nine percent, it also slashed their average monthly earnings last year by $125 month. One estimate indicated “the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs.”
“These results suggest a fundamental rethinking of the nature of low-wage work,” the study states further. “Importantly, the lost income associated with the hour reductions exceeds the gain associated with the net wage increase.”
However, “evidence attributes more modest effects to the first wage increase,” possibly because “most affected low-wage workers were already earning more than the statutory minimum at baseline,” according to the study.
The study’s findings contrast with that of another recent paper by economists from the University of California, Berkeley that claimed there is “no evidence of job loss in the city’s restaurant industry, even as pay reached $13 for workers in large companies.”
However, critics of the Berkley study have suggested that the region’s historically low unemployment and abundant job opportunities have cloaked the effects of a minimum wage increase.
Washington Research Council Senior Research Analyst Emily Makings also noted that the wage increase was phased in at the time of the study, which meant it “only covers through the first quarter of 2016, when minimum wages ranged from $10.50 to $13.00. Thus, the results do not prove that there are no negative effects from a $13 minimum wage (much less a $15 one)—many employers were allowed to pay less than that.”
Though the UW study found a net loss of zero in the restaurant industry, “effects are higher when examining only low-wage jobs.”
Also, focusing solely on how the minimum wage affects employment or worker hours may not be telling the whole story.
Seattle Restaurant Alliance Spokeswoman Jillian Henze told Lens that many business owners have instituted service fees or charges rather than reduce worker hours, thereby passing the minimum wage costs on to customers. So far, it’s a business model that works because people are willing to pay higher prices, she said.
“When they look at the Department of Revenue data…restaurant sales are still increasing,” she said.
To critics of a higher minimum wage such as Sen. Michael Baumgartner (R-6), the study’s findings didn’t come as a shock.
He told Lens that having the “highest minimum wage mandate in the country hurts small business and hurts working people; anecdotally, you see that every day in Eastern Washington, where we have a much lower minimum wage across the border in Idaho ($7.25 an hour versus $11).”
In recent years, Baumgartner has introduced numerous bills aimed at rolling back minimum wage laws. Last year, he sponsored legislation prohibiting local jurisdictions from enacting their own minimum wages. He also introduced SB 5541, enabling business owners to pay minor workers 85 percent of the minimum wage. Both bills received a “do pass” recommendation from the Senate Committee on Commerce, Labor and Sports, which Baumgartner chairs, but failed to clear the Senate.
Though the bills are still discussed, he said stiff opposition in the Democratic-controlled House makes it difficult for them to move forward.
While Seattle’s affluence makes a high minimum wage seem feasible, the harm can be easily seen in struggling economies. When the Fair Minimum Wage Act increased the federal minimum wage from $5.15 in 2006 to $7.25 by 2009, it stipulated that various U.S. territories such as Puerto Rico and American Samoa raise theirs to the federal level; by 2009, employment in Samoa’s tuna-canning industry fell by 58 percent as a result, according to Paul Kupiec and Ryan Nabil.
During a 2011 public hearing of the Subcommittee on Fisheries, Wildlife, Ocean, and Insular Affairs, Samoa Governor Togiola T.A. Tulafono testified that the wage increase had created “the real possibility that American Samoa could be left substantially without a private-sector economic base except for some limited visitor industry and fisheries activities. American Samoa’s economic base would then essentially be based solely on federal government expenditures in the territory.”
Even some $15 minimum wage proponents tacitly acknowledge the harm to businesses and workers. When voters approved Proposition 1 in 2013, raising the SeaTac minimum wage to $15 an hour, a union escape clause was included. When California Governor Jerry Brown signed a $15 minimum wage bill into law last year, he admitted that economically, it “may not make sense.”