Seattle Maxes Out The Minimum Wage

Andrew Sullivan —  May 5 2014 @ 3:22pm

The city has announced a plan to raise its minimum wage to $15 over the course of four to seven years:

That hourly wage would effectively be the world’s highest government-set minimum rate in a major city, unless Switzerland adopts a $25 minimum wage in a referendum scheduled for later this month. While other economies have higher minimum wages in exchange-rate terms (Australia’s is roughly $16 an hour), when you take into account spending power, the highest current minimum wage is Luxembourg’s, at the equivalent of $13.35 an hour.

Seattle’s proposed wage hike, produced by a special committee of business, labor and political leaders, is expected to be approved by city lawmakers, and will affect about a sixth of the city’s more than 600,000 residents. It will be instituted gradually, reaching $15 in 2017 for companies with more than 500 employees, and in 2021 for small businesses that offer their employees benefits or tips. After that, further increases will be indexed to inflation.

Eric Liu, who served on the advisory committee that developed the plan, holds it up as an example of how the minimum wage battle is becoming increasingly local:

This is, as the vice president might say, a big f-ing deal. It’s not just the $15 figure, which sets the floor higher than in any other city or state. It’s the fact that a broad coalition with significant business support made it happen. That makes this deal a model for other cities—and further evidence that norms are changing.

It suggests that it’s becoming less acceptable in America to run a business in a way that relies on poverty wages. It’s becoming less acceptable to suggest that the go-to remedy for the pain of working people should be tax cuts for the wealthy. And though a minimum-wage increase is not an innovative tool, its revival is part of a widening repertoire of policy ideas for closing the opportunity gap.

Seattle’s action shows we’re entering a new age of bypass. Washington is stuck and will be for the foreseeable future. So it falls increasingly to cities to act—and in increasingly coordinated ways.

But Jordan Weissmann worries that the plan might backfire:

The truth is, nobody has any idea what would happen if the minimum wage jumped that high. But there are good reasons to worry that results would be ugly.

The research literature on whether minimum wage increases kill jobs is decidedly mixed. Some economists have found that hikes lead to small job losses among teens and in industries like fast food. Others have found that losses are nonexistent, or at least negligible. In the end, I tend to argue that even if you assume reasonable job losses, middle-class and poor families come out ahead in the bargain. Though some workers end up unemployed, enough get raises to make the tradeoff worthwhile.

But that assumes we don’t lift the pay floor too high, too fast. Minimum wage studies have typically looked at small increases, somewhere around 50 cents or a dollar. Seattle’s proposal would be far larger. It would also have virtually no U.S. precedent.

And Reihan thinks the higher minimum wage might end up pricing more poor Washingtonians out of the city:

Poverty in the Seattle area is a largely suburban phenomenon, and it is a suburban phenomenon because the poor have been driven out of Seattle in large numbers of high rents. Even in a happy scenario in which a higher hourly minimum wage leads to higher market incomes for low-wage workers, restrictions on new housing development mean that more income earned by low-income Seattleites will be chasing the same limited stock of low-rent housing. And it’s hard to see a higher hourly minimum wage deterring price-insensitive high-income people from continuing to settle in Seattle. These high-wage workers will continue to gentrify low- and middle-income neighborhoods, putting still more pressure on the low-rent housing stock.