On January 2, 2020, Kate Rogers and Nick Wells write on CNBC:
POINTS
- Seattle passed a law in 2014 that would gradually increase its minimum wage to $15 an hour by 2021.
- The law is gaining attention as top Democratic presidential candidates like Bernie Sanders and Joe Biden call for a $15 per hour federal minimum wage.
- Implications for businesses and workers alike have been nuanced.
WATCH NOWVIDEO04:40Here’s what Seattle learned from hiking minimum wages
When Seattle began raising its minimum wage five years ago, local burger joint Dick’s Drive-In experienced an unintended effect.
Its employees opted to work fewer hours as their wages rose, a tall order in a tight labor market.
“We thought with higher wages it would be easier to get people to take more hours, but it’s been the opposite,” said Jasmine Donovan, president of Dick’s. She added that the company has had to raise prices for the first time in its history because of the cost of labor alone, whereas in the past, food costs drove such hikes.
Seattle’s law, which gradually increases its minimum wage to $15 an hour by 2021 from just over $9 an hour in 2014, is now at the forefront of a national debate over the impacts of progressive wage increases. It comes at a time when top Democratic presidential candidates like Bernie Sanders and Joe Biden are calling for a $15 per hour federal minimum wage as they try to appeal to working-class voters. The federal minimum wage is currently $7.25 an hour and has not been increased in over a decade.
“Seattle was catalytic to the entire national movement because what the Seattle City Council did by passing the law was show the entire nation that $15 was not a ridiculous demand that people were laughing at back in 2012, but an actual key piece of policy that allowed for working people all across that city to have more money in their pockets that they spent in their local neighborhoods and then grew the economy and local business as a result,” said Mary Kay Henry, president of the Service Employees International Union, which launched the Fight for $15 and a Union campaign.
Seattle Mayor Ed Murray (C) signs a bill that raises the city’s minimum wage to $15 an hour on June 3, 2014 in Seattle, Washington.David Ryder | Getty Images
Businesses like Dick’s have seen their costs go up. Dick’s pays above minimum wage, with some locations starting workers at $17 and $18 an hour, and most workers are students in their 20s. Benefits like 401(k) plans and health insurance are also available to workers regardless of the number of hours worked. But higher minimum wages citywide pressure employers to increase pay even if they are already above that threshold, in order to compete for talent.
Meanwhile, the Seattle law has been life changing for workers like Martin Johnson, who lobbied for higher pay with the advocacy group Working Washington. He works three minimum wage jobs — as a temporary cook on game days at the city’s stadiums, as a janitor at Costco on the overnight shift and as a handyman in his own small business. The raise brought with it more dignity for workers and boosted morale, he said.
“Instead of being paid $9 an hour, you’re getting $15 an hour to do the same work. You feel better about yourself — you feel appreciated,” Johnson, 54, said.
Martin Johnson works three minimum wage jobs, and advocated for higher pay in the city. He says wage increases have brought workers more dignity and boosted morale.Geoff Nelson | CNBC
Overall, implications for businesses and workers alike have been nuanced. While there are benefits for workers who saw higher pay, others may have seen fewer hours. Some businesses flourished, while others struggled in the face of greater regulation and intense competition in the city’s hot economy.
No consensus among economists
Studies of the effects of the Seattle wage hike have had different findings: A 2017 University of Washington study found that while wages went up, hours worked declined, resulting in less pay for low-wage workers. But in a follow-up published last year, the authors noted that this wasn’t the case for everyone, and experienced workers in low-wage jobs saw their earnings rise.
Another from researchers at the University of California, Berkeley released in 2018 found that the wage hikes increased pay and have not led to job losses. The Berkeley and Washington studies measured different groups of workers, with varying results.
The conflicting studies highlight a broader debate about what a $15 federal minimum wage might do for businesses and workers nationwide. Federal Reserve Chairman Jerome Powell even touched on the issue during his testimony before the House of Representatives this summer saying. “there is no consensus among economists … economists are all over the place on this.”
One of the challenges of measuring Seattle’s experience with the minimum wage hike is that the city’s economy is in a period of robust growth. Since the wage increase began in 2015, Seattle/Tacoma’s job growth has slightly outpaced the state of Washington as a whole, at 12.9%. The city’s population has increased some 13% over 2015, according to the Washington state Office of Financial Management. Average hourly earnings were $39.38 in October, an increase of 14.5% from the same month in 2015.
That prompts a question: Are higher wages necessary due to the hot economy, or has the economy continued to grow due to higher pay?
Mixed results for businesses
When the minimum wage increase in Seattle passed, Chad Mackay, CEO of Fire & Vine Hospitality, a Pacific Northwest hospitality group, he decided to reevaluate his business model.
“When we projected out the minimum wage increases, and the loss of a tip credit [which allows employers to count tips toward minimum wage], we realized we would be functionally bankrupt if you were to fast forward seven years in the future. We decided the business model was broken, and it’s time for us to change,” Mackay said.
WATCH NOWVIDEO05:03How rising wages impacted Seattle
Fire & Vine has long paid above minimum wage in the front and back of house due to demand for talent in the market and the company’s beliefs on professional pay. The company moved to a commission-based model, with a 20% service charge for diners. Servers are paid out an hourly wage and a 15% commission and can make $70 or more per hour in the Seattle market, up from some $45 an hour earlier. Guests can also leave extra tips for servers if desired. Those in the back of the house like dishwashers begin between $17 and $20 an hour — some 40% over where they were prior.
The wage increases haven’t hurt his business: He’s nearly doubled in size, with some 600 workers today with 12 locations under management, during a time when other restaurants have closed their doors.
“Once we went to that model, I have never worried about minimum wage. And I’m not sure there’s a restaurateur in Washington state or in California or New York, that can say, ‘We left behind minimum wage as an issue for our company,’” Mackay said.
But while some businesses have thrived, others have faced challenges in the face of Seattle’s changing economy.
Dick’s Drive-In, SeattleSource: Dick’s Drive-In
Matthew Dillon, owner of Sitka & Spruce, says that he believes the minimum wage should be much higher than $15 an hour, which is why he also pays workers above that threshold. But when his lease came up, the James Beard Award-winning chef decided it was time to close his doors after more than a decade in business, serving the restaurant’s last dinner on New Year’s Eve. Passing off costs to consumers in an environment where his rent was $16,000 per month including taxes and fees, and where both food and labor costs are also on the rise, felt unsustainable. He has other businesses that are still up and running in the area.
“Wages are going up, the price of food is going up, [and] my property taxes that I have to pay the landlord are going up. My rent is going up for my staff, or staff that was here feels like, ‘Well I can’t be in the city anymore, so you have to find someone to replace me,’” he said. “That’s really hard. The cost of that, just working through that as a business owner, is going up.”
It’s an issue Eric Tanaka is also contending with. The partner at Tom Douglas Seattle Kitchen says the group also decided not to renew a lease for a building that houses three of its restaurants — TanakaSan, Assembly Hall and Home Remedy. Moving forward, Tanaka says he may consider less labor-intensive models, as well as concept and menu tweaks, within the group’s different businesses as costs have gone up and talent can be tough to find in the city. The company pays above minimum wage and offers benefits for those working more than 25 hours a week. It recently settled a class-action suit with its employees over service fee charges.
“I think as we start to look at future planning, we are definitely looking at restaurant models that take less labor,” Tanaka said.
That could be tough given that his restaurants make things from scratch. “It’s hard to be handmade without the hands. But we are looking at different ways to leverage those hands,” Tanaka said. “It’s a challenge every day because there are less and less people who want to get into our industry.”
Gary Reber Comments:
This is yet another article in the debate squabble between pro minimum-wage advocates and those opposed to a $15.00 minimum wage.
This is fundamentally a wage cost increase without increasing productivity on the part of humans.
The real issue we should be addressing is how to empower EVERY citizen to earn more income through ownership of the non-human factor of production –– technological invention and innovation that results in more efficient “tools” (what economists call productive physical capital) that reduce or eliminate the necessity for human labor or extend the efficient output of people working alongside and with productive physical capital.
Back in June of 2017, I commented on a Harvard study (http://www.foreconomicjustice.org/?p=17155) that pointed to minimum wage increases resulting in worker layoffs, increased pricing and hour-cuts for existing workers, resulting in reduced employment. Furthermore, as profit margins are further squeezed, those with the ability to automate are doing so and those who don’t are closing their doors. All this is happening while the minimum wage of $15 set by some cities, which began to take full effect in 2018.
But raising the minimum wage was supposed not to kill jobs or create operational costs that would squeeze profit margins and result in business closures. Wasn’t it?
Using common sense, if raising the minimum wage will not kill jobs then why not raise the minimum wage to $25.00 or $50.00 or $100.00 per hour? Of course there are consequences that either are reflected in job elimination, increased prices or business closures. Virtually never are the OWNERS of corporations willing to reduce profits, which often are marginal.
Competition drives businesses to constantly figure out ways to reduce operational costs. Full employment is not an objective of businesses nor is conducting business statically in terms of geographical location. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum.
If wage levels were not a factor there would be also no reason for ANY company to exit production in the United States and move production to foreign lands with significantly less labor costs. Also, there is the impact on pricing levels, as any increases in the cost of production or service always results in pricing increases –– inflation.
If this were not the case, then no company would be compelled to seek other non-human, more cost-efficient means of production or to move production to foreign countries whose workers are paid far less than Americans. Increasingly, companies are seeking more efficient and less long term costs that non-human technology can deliver to reduce their operating costs, provide higher build quality, automate service, and maximize profits for their OWNERS. As is virtually always the case, the OWNERS of companies do not want to reduce profits.
What the proponents of raising the minimum wage fundamentally are addressing is that low-paid American workers need to earn more income.
Americans need an income to support a family and meet their living expenses. BUT…
Unfortunately the effects of minimum wage hikes are not short term. They are an endless cycle. The call is to raise the minimum wage to increase purchasing power. Corporations and business do not pay expenses, they merely roll them into their prices to cover them. Once that has been done, increased prices consume the increased minimum wage and consumers that were impacted are right back in the same economic position.
There are ONLY five ways to deal with forcing a 2X minimum wage increase: 1) raise prices on the products and services offered by the employer/OWNER(s) of the business impacted, which are passed onto the business’s customers, 2) further reduce non-human marginal costs of producing such as the cost of materials, etc. 3) save labor by reducing the number of people employed or employ part time labor to avoid paying benefit costs, 4) replace human workers with non-human workers such as machines, robotics, computerization, etc. and 5) reduce profitability of the business.
Paying people less than the market wage rate is unjust. That’s obvious. It’s practically the definition of injustice, to pay people less than the market rate, or to withhold pay. Stop and think about it. An employer is buying someone’s labor. If labor is worth X per day at the market rate, but an employer is forced to pay 2X per day, isn’t the employer being cheated? People tend to want to do things in the most efficient way possible, and get as much as possible for the least amount of effort or cost.
Doing more with less comes naturally if you work for yourself, or you own whatever is doing the work, e.g., productive capital––the non-human means of production. You want as much as you can get for as little cost or effort as possible. No one is harmed, because you bear the cost, whether high or low. You benefit, because you pay.
The wage system distorts this natural tendency, a virtue, into something vicious, that is, a vice. A worker who has only his or her labor to sell is going to want as much as he or she possibly can get for it. Naturally, he or she are also going to want to give as little as he or she can get away with.
If he or she was the only one involved, there would be no problem. Unfortunately, there is the person who is buying the labor, and the people who are buying the good or service that the labor, in part, is being used to produce. If the worker has power, the employer pays more. If the worker does not have power, the employer will pay less. Wages will be just only in the rare instance in which the propertied employer and propertyless worker have equal power.
We need to begin focusing on the means for people to earn more income, and not solely dependent on earnings from jobs, which are being destroyed with tectonic shifts in the technologies of production. We need to implement financial mechanisms to finance future economic growth and simultaneously create new capital asset owners. This can be accomplished with monetary reform and using insured, interest-free capital credit (without the requirement of past savings, a job or any other source of income), repayable out of the future earnings in the investments in our economy’s growth.
The only way out is to give workers a stake in keeping costs low so that the natural tendency to do more with less works in favor of everybody, not against them. An aggressive program of expanded productive capital ownership, such as proposed in the Capital Homestead Act, is therefore not only consistent with nature, it is in everybody’s best interest, morally and economically.
Support the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/
