In the fall of 2015 a citizens’ campaign group calling itself 15 Now Tacoma put a measure on the ballot to move Tacoma’s then $9.75-an-hour minimum wage to an immediate $15 per hour.
This editorial board called the proposal “magical thinking.”
Spiking the minimum wage ignored the realities of owning a small business; it didn’t take into account slimmer profit margins, the cost of health care, rent, or workers’ benefits. We surmised that big businesses like Costco or Walmart could absorb the impact, but common sense said small businesses would collapse under the weight of a $15 hike.
Now a recent study out of the University of Washington confirms what we suspected: accelerating the minimum wage can hurt the very people it intends to help.
Thankfully, the Tacoma City Council sent a more modest proposal to the November 2015 ballot. The reasonable increase of $12 by 2018 left room for businesses to adjust and was supported by the Tacoma-Pierce County Chamber of Commerce. Voters agreed.
By that time, Seattle was on its way to a minimum wage of $15 by 2021. Over a nine month period, their minimum wage went up 37 percent. Since January large employers have already been paying $15--the highest in the nation, other employers are paying $13.
Did the sudden pay increase help low-wage earners make ends meet in one of the costliest regions in the country? Seattle officials commissioned UW economists to find out. The answer they came back with was a definitive no.
Researchers interviewed hundreds of employers and employees and found a steep reduction in jobs and a 9 percent decline in working hours; businesses also put off new hiring. According to one of the study’s authors, Jacob Vigdor, “For every $1 worth of increased wages, we are seeing $3 worth of lost employment opportunities.”
The University of California Berkeley did their own research and their findings paint a rosier picture of Seattle’s minimum wage experiment. This study looked at the food service business and found that pay actually went up for low-skilled workers and the number of jobs didn’t change.
As is human nature, people tend to side with the study that best fits their belief system, but we say the UW findings should at least serve as a speed bump for those barreling ahead citing higher wages as the cure-all for society’s inequities.
The impulse to want to increase wages is understandable. As Matt Driscoll recently reported, a minimum-wage worker needs to work 62 hours every week to afford a one-bedroom apartment in Pierce County. A two-bed apartment requires two full-time minimum wage jobs.
But when government overshoots the mark and sets an arbitrary wage, businesses naturally look for other ways to cut costs like reducing hours and benefits. This is not about justifying the wealth of the rich, it’s about respecting the natural law of market forces. The average low-wage worker in Seattle lost $125 a month because of the wage hike.
It’s a temptation to file the UW study under “We told you so,” but keeping wages low is not the only takeaway. Increasing skill level through education and training should be the takeaway. Encouraging employers to pay fair wages should be the takeaway.
Last November 57 percent of Washington voters approved Initiative 1433 which gradually phases in statewide minimum wage increases. By 2020, Washington’s minimum wage will hit $13.50 an hour.
It’s unclear the impact the gradual increase will have on low-wage workers, but it stands to reason overall family income will go up and that serves everyone.
When workers make less, government is forced to fill in the gaps with Medicaid, housing assistance and other kinds of help; businesses get taxed, and the circle of poverty goes unbroken.