Building an Economy that Works for Everyone

A Pragmatic Approach to a Fair Minimum Wage

15nowPeople who toil away at jobs we all depend on shouldn’t live in poverty. But would a $15 minimum wage work in Seattle?

Here’s a look past the rhetoric at what the research shows.

Washington’s minimum wage of $9.32 isn’t enough to cover the basics. Affording a one-bedroom apartment in King County required working full-time at $17.54 an hour in 2013, according to a study by the Washington Low Income Housing Alliance and the Department of Commerce. But tens of thousands of local workers in fast food, restaurants, retail, childcare, hotels, and other common occupations, typically earn less than $12.50.

The average cost of a one-bedroom shot up 55% in the past 4 years within a 10 mile radius of Seattle, a period when inflation – and the state minimum wage, rose just 7.5%.

Inequality has been on the rise for three decades, and it is causing economic instability and job-killing recessions. If minimum wage had kept pace with productivity gains over that period it would now be above $16. Since the start of the recession in 2008, corporate profits have climbed steadily, but the share of our national economy going to workers wages has declined, with more of total wages going to CEOS, hedge fund managers, and software engineers – and less to everybody else.

We need to do something about low wages. But, will raising the minimum wage to $15 force businesses to cut jobs and in some cases close altogether as opponents contend?

Twenty-one states now have minimum wages above the federal level. We have lots of data to test the theory that raising the minimum wage decreases hiring.

The most recent, economically sophisticated studies that actually use all these data have concluded that all the minimum wage increases of the past 25 years had no significant impact on jobs. The increases did raise monthly incomes for low-wage workers and decrease turn over.

When workers stay in their jobs longer, employers have lower hiring and training costs, and productivity increases. This helps explain why employers can pay higher wages without cutting jobs.

Other cities have set their own minimum wages. In the fall of 2013, Washington, DC and two Maryland counties acted to raise their minimum wages in steps, to reach $11.50 by 2016 or 2017. San Francisco’s minimum wage is $10.74, and the city also requires businesses to provide paid sick days and health insurance. A study just out from UC Berkeley concludes that employers made the adjustment to higher workplace standards without cutting jobs, in some cases modestly raising prices along with enjoying the benefits of less turnover and higher productivity.

The minimum wage increases in these studies were all less than the 60% raise that jumping straight to $15 would be. We don’t actually know what would happen with a quick increase of that scale. It’s not just the corporate fat cats who are worried, but owners of some local shops and restaurants operating on small margins, and childcare centers and social service agencies who don’t have the option of raising prices.

Taking all the data into account, here are my recommendations:

  1. Move to $15 in several steps. Workers need more in their pockets immediately, but a gradual increase gives small business owners time to adjust.
  2. Keep it universal. Some have suggested a small business exemption, and the Restaurant Association is clamoring for tip credits, or worse, “total compensation” (that means counting all benefits – health insurance, sick leave, meals – toward the minimum wage). All workers deserve a living wage. Employees shouldn’t have to rely on the whims of customers’ voluntary contributions. We hear anecdotally about bartenders and waiters at trendy nightspots who earn $40,000 to $70,000 a year. Well, why shouldn’t they? Their employers are bringing in plenty, and well-heeled customers buying $13 cocktails and laying down big tips would pay higher menu prices, too. But the truth is, most tipped workers are serving customers with modest incomes, often work part-time hours and slow shifts. Allowing employers to deduct not only tips but the “cost” of benefits, including every cup of coffee and bathroom break, provides new opportunities for wage theft and could result in some people seeing their paycheck go down.

Low wage workers are all ages. Some support families, or are trying to put themselves through school in the face of skyrocketing tuition. Others are college grads forced to move back in with mom because they can’t afford rent.

Low wages do not induce businesses to hire more workers – more customers do. So let’s go ahead and give Seattle a raise.

Originally published in the Rainier Valley Post

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