History in the Making: Seattle Is Raising Its Minimum Wage to $15

Kshama Sawant, Seattle’s socialist city council member, drove the city’s movement for a $15 minimum wage.

It’s official. Seattle lawmakers have voted to gradually raise the local minimum wage to $15 per hour, thus fulfilling the dreams of labor activists, hard-pressed McDonald’s workers, and curious economists everywhere who love it when cities turn themselves into living laboratories. The city is now on a course for history—and quite possibly a nasty collision with unintended consequences.

As I’ve argued here before, a $15 pay floor is largely unprecedented. The federal minimum has never come nearly so high, even taking inflation into account. Nor has any state minimum. In the U.S., only the tiny city of SeaTac, which largely consists of an airport servicing the Seattle metro area, has dared cross the $15 mark, and the jury is still out on its impact there. Internationally, no country has an official minimum above the $11 mark once you adjust for purchasing power, according to the Organization for Economic Co-operation and Development.** It’s often reported that fast food workers in Denmark can earn $20 per hour thanks to their strong labor unions. But take into account the nation’s eye-popping cost of living, and their wages are closer to $13.*

It’s true, as Salon has noted, that some U.S. cities have passed living-wage ordinances for local government employees and municipal contractors that hover around $15. But that’s somewhat immaterial to what’s going on in Seattle, since those laws tend to exclude the very low-pay service workers in retail and fast food whose jobs might be at risk when the minimum rises. They are also, often, very poorly enforced.

There is one important sense in which Seattle’s hike does have some precedent. Thanks to the city’s prosperous, high-tech economy, metro-area pay tends to be high. As University of Massachusetts Amherst economist Arindrajit Dube—one of the country’s leading minimum wage researchers—pointed out to me, Seattle’s proposal would bring its minimum up to about 59 percent of the local median wage. That’s a high ratio, but not unheard of internationally. And in low-wage states like Louisiana and Arkansas, he said, the federal minimum has hit 60 percent of the regional median.

Nonetheless, because no city or state has attempted anything exactly like the hike Seattle is now set to enact (the law is further complicated by a carve-out that lets businesses pay teens less than the minimum), the existing research on minimum wage increases can’t tell us much about what its effects will be. “We are not going to be able to predict very well the likely impacts of this policy on employment using our existing set of estimates,” Dube told me last month.

Which is why this test run, which could directly affect a quarter of Seattle’s workforce by the time it phases in over the next seven years, is both fascinating and frightening. The economics literature suggests that moderate increases in the minimum help workers more than they hurt them, because the raises outweigh the cost of lob losses. At $15, the effects might well be different. Some businesses may cut jobs. Others simply might not choose to open or expand in Seattle. Others could try to find ways to automate jobs.

But, as Reihan Salam has written, the effects may also be more subtly damaging. As wages rise, businesses could simply seek to hire better educated and skilled employees, some of whom may well live outside the city limits but suddenly find themselves happy to commute for a fatter paycheck. Seattle’s low-wage workers, meaning those who earn less than $15 an hour, are already more likely to have attended college than their counterparts in cities like Denver and San Francisco. As the pay floor rises, it seems reasonable to suspect that college-educated workers from around the region will take a growing share of jobs that might have once gone to high-school grads.

University of Washington

If that’s the outcome, Seattle could become a more hostile place for young and poor workers to live than it is today, pushing them out to the suburbs, where the region’s poverty is already concentrated. If that’s the case, the policy could inflict pain without ever touching the unemployment rate.

The upshot: The $15 minimum doesn’t have to turn Seattle’s labor market into a flaming wreck for it to cause harm. In the end, we really can’t say for sure what it will do. Doubters might be proven wrong—after all, there were people just like me in the Gilded Age who raised the same arguments against creating any minimum wage in the first place. But in making a bit of history, the city may end up hurting the people it’s trying most to help. And the scars won’t necessarily be obvious.

*Footnote: For the sake of it, I tried adjusting Seattle’s proposed minimum using price levels in Seattle, as calculated by the Bureau of Economic Analysis, to see if that would bring it down in real terms. Even accounting for a regional purchasing power, $15 in Seattle is still worth about $13.95, on average, across the rest of the country.

** Correction, June 3, 2014: This post originally misstated the name of the Organization for Economic Co-operation and Development.