Nation should be wary of Seattle minimum wage
Seattle’s City Council ventured into unprecedented economic territory Monday when its nine members unanimously voted to increase the minimum wage to $15 an hour. Already boasting the nation’s highest minimum wage at $9.32 an hour, Seattle will become more than just an economically progressive state — it will act as an experiment for other states to examine the true effects of such a high minimum wage.
Increases in the minimum wage generally adjust for inflation or rising costs of living, and nothing more. While the higher wage has a huge backing in Seattle, other cities considering a similar increase should contain their excitement; not only does Seattle have a very unique economic climate that might not apply to other cities, but there is also a startling lack of empirical data that makes the wage increase a scientific shot in the dark.
It makes sense that Seattle was the first city to pass such a reform: the city’s mayor, Ed Murray, included the wage increase in his platform as one of his top priorities, and city councilmember Kshama Sawant officially identifies as socialist. In addition, the growth and presence of large companies such as Amazon and Boeing have fundamentally shaped the job market and population of Seattle as a whole. Just because the increase was supported popularly and politically, however, does not mean it had sound backing in economic principles and data.
In fact, given the unprecedented nature of the increase there is no economic data at all to justify it — his kind of wage increase has never been observed and studied by economists and politicians. This does not inherently mean raising the minimum wage will have a negative economic impact, but any economic policy set by primarily political motivations should be monitored closely.
The city council, of course, is acting to ensure a smooth transition: the wage will incrementally increase over the next several years at different rates based on businesses’ size and the benefits they offer. These measures, however, will only serve to lessen the shock of the reforms. Such a dramatic wage increase will undoubtedly have dramatic effects — whether they will be beneficial or not overall can only be speculated on.
And there are plenty of reasons a $15 minimum wage could backfire. Sawant aims to “turn the tide against corporate politics” with the new wage, but the situation is much more complicated than a simple battle between employees and corporations — small businesses could be driven to bankruptcy, and even larger companies that could potentially afford it might move to cut costs. Also, the wage increase is not statewide; the increase could cause businesses to move to nearby suburbs that refuse to adopt similar changes.
Even more ambiguous is who will be bearing the brunt of the costs involved in the wage increase. It could be the very business that the law attempts to curb, but consumers will also need to acclimate — it’s not a question of if the price of goods will go up, but how much the increase will be.
Even the employees the reform seeks to protect could be adversely affected, as employers will have to find ways to cut costs and adjust to paying such a high wage. At SeaTac airport near Seattle, for example, a $15 minimum wage has already been implemented. According to Forbes, a cleaning lady at a SeaTac hotel lost her 401k, health insurance and other benefits as a result of the wage increase, and a part-time waitress reported making less than she did before with her $7 salary and tips. She also now has to pay for parking and bring her own food. Making more money per hour, although at first glance beneficial to the employee, can cause unforseen problems down the line.
This isn’t to say the wage increase will be universally negative, however. According to the New York Times, more than 24 percent of Seattle residents earn less than $15 an hour — considering how widely supported the increase was, it’s obvious that many of these people will have a much higher standard of living. Income inequality in America is indisputably a problem, and there are plenty of supporters who believe minimum wage reform can help alleviate the issue.
By setting such a high minimum wage, Seattle is setting a precedent for other cities around the country, and since income inequality is such a hotly debated topic some, of these cities will feel pressured to follow Seattle’s example. The true effects of the wage increase, however, won’t be fully understood until it is fully implemented and has been observed for a few years. The rest of the nation should wait and see how Seattle’s reforms play out before following suit.
Burke Gibson is a senior majoring in economics and is the editorial director of the Daily Trojan.