The Law:
Last week, the Seattle city council unanimously voted to increase the city’s minimum wage to $15/hr, giving Seattle the highest minimum wage in the country. Not only is this new minimum wage over five dollars more than the Washington state minimum wage, but it is also more than double the federal minimum wage. Fortunately for Seattle businesses, the new wage level will be phased in over a period of three to seven years depending on a company’s size and the benefits they provide to employees. Companies with less than 500 employees are given more time to comply with the law but unfortunately the number of employees is calculated as the total number in the United States. So a small Chipotle franchise with less than 30 employees would not qualify. Understandably, the International Franchise Association (IFA) is not happy about this new law because they say it unfairly discriminates against franchise businesses. As a result, Wednesday morning the IFA filed a lawsuit in the US district court to block the new law.
Seattle’s Motivations
Sally J. Clark, the Seattle City Council Member who chaired the committee to raise minimum wage maintains that the main reasoning behind the change was to decrease the rising gap between the upper and lower class. She says that after careful calculations, the council found that $15/hr is the minimum hourly wage required in Seattle for a full-time worker to meet basic needs including housing, food, utilities and transportation.
Clark also believes that a small increase in prices isn’t necessarily a bad thing:
“Higher minimum wage might mean presenting a truer cost to consumers. If you think it’s odd that a burger, fries, and shake can cost just $4, that’s because that price is subsidized in part by the lower wages paid to the people who cook, serve, and clean up after your meal.”
Reactions to the Law:
Although Sally Clark and the rest of the Seattle City Council are set in their beliefs that the higher minimum wage will have a positive impact on Seattle’s economy, not everyone shares their confidence. Many believe that the higher wage will lead to higher unemployment as well as higher prices. It is simple demand theory that when the price of a good goes up, the demand for that good goes down.
Tim Worstall, a Forbes contributor, believes that the higher wage level will not only lead to higher unemployment but also fewer employee benefits. He cites SeaTac as an example because the city has already implemented the $15/hr wage. He states that many employees have lost employee benefits such as their 401K, free food at work, and free parking. Waitresses are also getting tipped less because consumers assume they are already making enough money from the high minimum wage.
Catherine Rampell, of the Washington Post, presented a more positive outlook for Seattle. Although she believes the higher wage level could lead to higher unemployment, she also believes the current state of Seattle’s economy could help. Seattle is already a very rich area, thanks to companies like Microsoft and Boeing, and there is consequently very low unemployment in the city. Therefore it might be easier for Seattle based companies to afford the higher wage.
This discrepancy in opinion can also be seen in the businesses. Dick’s Burger Joint, a popular fast food restaurant in Seattle, insists that they plan to raise prices in order to make up for their higher labor costs. On the other hand, Molly Nietzel, the owner of Seattle’s Molly Moon’s Ice Cream, believes that higher wages means consumers will have more money in their pockets to spend on food. Molly also insists that she would rather have fewer profits than raise her prices.
Like most economic theory, the effects of raising the wage level cannot be known for certain, but it will be interesting to see how Seattle’s economy adapts to the change and also if other American cities begin to follow suit.