What Does the Seattle Minimum Wage Mean for Business Owners Around the US?

The facts surrounding minimum wage increases are complex and confusing. Nevertheless, most Americans have managed to create a completely cut-and-dry discourse around the subject. For the most part, from laypeople to business owners to legislators, we are either for or against raising the minimum wage.

However, as recent surveys in Seattle have proven, the question of raising the minimum wage is far trickier than most are willing to admit. Since passing the Seattle Minimum Wage Ordinance in June 2014, the city has gradually increased its minimum wage to $13 an hour. The ordinance set the eventual minimum wage to be $15 an hour by the end of its two to four year implementation period—the exact timing depends on a company’s size.

Gradual Raise Allows for Detailed Research

This raise has been gradual and has allowed for economists to debrief with each incremental increase in the minimum wage. Reading the news in the wake of each incremental increase provides a good idea of how each step went.

In fact, articles from 2016 covering the effects of Seattle’s April 2015 minimum wage raise from $9.47 to $11 an hour are effusive in their optimism. In his article “Doomsayers Keep Getting It Wrong on Higher Minimum Wages” for Bloomberg, Barry Ritholtz wrote about the positive outcome of the incremental wage increase as proof that the naysayers totally got it wrong.

Indeed, as Ritholtz wrote, the city’s economy responded to the $11 minimum wage by flourishing. Unemployment fell, new restaurants opened, and “the city on the Puget Sound [was] booming.”

Nonetheless, there were still two more stages to the city’s minimum wage increase waiting to be put into place when Ritholtz wrote this gleaming review. Though the step of the ordinance that Ritholtz covered did indeed increase average low-wage worker earnings by about $72 every three months, the next step of the ordinance that a follow-up Bloomberg article covered didn’t yield such positive effects.

In fact, according to a recent survey by an economic research team at University of Washington, this next step of increasing the city’s minimum wage from $11 to $13 per hour at the very beginning of 2016 caused low-wage workers to earn a dismal $125 less every month. The increase in wages wasn’t enough to balance out a severe dip in employment that accompanied it.

A Well-Documented Sample

But how do we know all of this? Luckily, Seattle has access to a wealth of data that, along with this topical ordinance, makes it an ideal setting for a minimum wage case study. The study revealing the adverse effects of the most recent minimum wage jump was made possible thanks to the unusually thorough data collection of Washington state.

As the study writes, “Washington is one of four states in the US that collects not only data on earnings, but also on hours worked during the quarter. Employers are required to report actual hours worked for employees whose hours are tracked (i.e., hourly workers), and report either actual hours worked or total number of hours assuming a 40-hour workweek for employees whose hours are not tracked (i.e., salaried workers).”  

Because of this “unique dataset,” the University of Washington’s research team could measure the average hourly wage paid to low-wage workers, who they defined as workers earning less than $19 per hour. However, the data collected only allowed the research to include information from single-site firms.

So while the study, unlike prior minimum-wage studies like Card and Krueger’s study of restaurant workers’ wages, doesn’t have to rely on industry-specific proxies to represent all low-wage workers, its data was limited to employees whose firms have only one site.

Conveniently Disproportionate Focus on Small Business

However, this limitation for the overall study makes it all the more pertinent for small business owners not only in Seattle but also across the nation. Because the study’s sample doesn’t reach beyond single-site firms, the results overwhelmingly consider small businesses and, by extension, the $13 minimum wage’s impact on the small business’s employees and, even more, the small business’s hiring practices.

Because of this somewhat disproportionate look into of Seattle’s Minimum Wage Ordinance’s ramifications, this report shows us how a sample size that is comprised of mostly small businesses reacts to a mandated floor in employee hourly compensation. Though a higher minimum wage for low-wage workers might put more money in the workers’ pockets and therefore into the local economy, the $13 minimum wage in the end caused employers to hire less and to give fewer hours to low-wage workers.

Ultimately, because this most recent hike to $13—only stage two of three on Seattle’s road to $15—small businesses have had to alter their hiring practices by decreasing employee’s hours and by hiring fewer employees.

The ordinance’s second step, in relation to its first step, shows us the inevitable nuances of minimum wage implementation—though a slight change will improve the economy, a more drastic change will stunt employment, make low-wage workers earn way less, and eventually force them to spend less money in the local economy.

With another huge jump in the minimum wage looming—from $13 to $15—Seattle and its business owners will have to wait and see how it will further affect employment and spending.  

In the end, Seattle’s legislators need to decide whether the moral ideology behind a $15 minimum wage will be worth the potential further harm to the local economy and its most vulnerable workers.

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from Fundera Ledger https://www.fundera.com/blog/seattle-minimum-wage