Last week, members of the Seattle City Council voted unanimously to raise the minimum wage in The Emerald City to $15 per hour, from the already-highest-in-the-nation state rate of $9.32 per hour. The new rate will be phased in over a seven year period starting on April 1, 2015, based on the size of each business (smaller businesses will be on a longer phase-in time table). Additionally, businesses will be permitted to pay lower training wages to teenagers.
Unfortunately, the Seattle City Council ignored the fact that minimum wage hikes typically fail to raise overall wage levels and can reduce overall employment by making unskilled and young workers more expensive to hire. Furthermore, businesses are likely to pass on the cost of a minimum wage increase to their customers.
We can already see repercussions from a similar minimum wage increase in neighboring SeaTac, where the minimum wage soared to $15 on January 1, 2014, after squeaking by on the November ballot. One parking lot in SeaTac added a “living wage surcharge” of 99 cents per day to the price of parking to cover the increased cost of labor. The nearby Clarion Hotel closed its full-service restaurant abruptly, causing the loss of fifteen jobs. A hotel cleaning lady explained that her benefits were slashed, including 401K, health insurance, paid vacation, free food, and free parking.
Restaurateurs in Seattle have already begun to speak up. Jeremy Hardy, owner of Coastal Kitchen and Mioposto, suggested that the minimum wage increase is bad news for the Seattle economy, stating, “We are going to adjust using all of the tools at our disposal; pricing, reducing menu offerings, look at operating hours, reducing labor where we can and certainly not opening another business in our beloved Seattle.” Not only will entrepreneurs pause or perhaps not even consider opening new businesses in Seattle, but one restaurant owner believes customers will start spending less as well. Salaried workers unaffected by the wage increase will see local prices rise without increases in their own compensation. Angela Stowell, CFO and owner of Ethan Stowell restaurants, worries “that our guests will start spending less and going out less as they adjust to higher prices and their own wage compression.” To make matters worse, Brendan McGill, owner of Hitchcock and Hitchcock Deli, points out, “The public sentiment is shifting to ‘why tip? They already make $15 an hour.’ …I wouldn't expect service to improve around town.”
The intended purpose of the minimum wage increase is to improve the lives of low-wage, unskilled workers. Yet for some workers in SeaTac, we have already seen that the opposite is true. As Seattle’s wage hike begins next year, concerned taxpayers throughout the country will be watching closely. Hopefully, city and state officials considering a similar wage increase will take note and avoid making the same mistake.