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Step back, watch wage hike implode

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By Richard S. Davis
Published:
The left won big in Seattle last week. As every sentient being with an interest in politics no doubt knows, a unanimous city council passed, and Seattle Mayor Ed Murray signed into law, a $15 minimum wage law for the city. This is, as Joe Biden might say if he had an editor, a big deal.
Over the weekend, a writer for The Observer, a left-leaning British newspaper, hailed the minimum wage hike and Seattle's socialist city councilmember Kshama Sawant. He closed, “Seattle is an important milestone. Take note.”
For small businesses in the city, it might be more accurate to say Seattle is a millstone. No matter. Now that Seattle has taken the plunge off the cliff, the activists have moved on in search of the second lemming.
The rush to get other cities to replicate Seattle's unprecedented increase in the minimum wage is classic politics. Seize the moment. Ride the momentum.
Even as councilmembers voted for the wage lift, they acknowledged that they were leaping into the unknown. Before the vote, councilmember Sally Clark said, “No city or state has gone this far. We go into uncharted territory.”
Seattle's wage boost takes effect over several years, varies according to business size, and has some allowances for tipped employees and firms providing health care. That's intended to soften the blow a bit, but those modest concessions to economic reality won't mean much over time.
Nothing of this magnitude has been attempted before. SeaTac's $15 minimum wage campaign, while more immediate in its effect, is limited to a small number of businesses in a small and unusually transportation-based city.
In SeaTac, the publisher of Northwest Asian Weekly reports that even hospitality workers are questioning the win. A housekeeper at one airport-area hotel says that her hours have been cut and she no longer receives a 401k, health insurance, vacation or free meals. The anecdote confirms other reports of staff reductions, shortened hours and curtailed benefits. Still, it's difficult to generalize from SeaTac's limited and unusual experience.
Seattle will be another matter. Predictably, economists are eager to speculate.
Robert Reich, secretary of labor under President Clinton, has long advocated for a higher minimum wage. On his blog, he predicts nothing but good things for Seattle: no net loss of employment, more entrants into the labor force and “workers who are highly reliable and likely to stay longer, resulting in real savings” for employers.
There's more than a dram of condescension there. Apparently, employers are too dim to realize that higher wages might gain them better, happier workers. So government has to force them to do what's best for them. Kind of like school lunch programs, I guess.
A former chief economist for the Department of Labor (not under Reich), Diana Furchtgott-Roth, offers a less rosy picture of the Seattle wage hike.
“…low-skill jobs remaining in the city will see increased competition with medium-skilled workers winning out over low-skilled, mainly young workers trying to reach the first rung of the career ladder.” Others, she says, will be replaced by touchscreen kiosks and self-scanning checkout booths.
The higher minimum wage will make it more difficult for employers to differentiate themselves by offering better compensation packages. Those employers who want to recruit and retain the most skilled works will end up having to pay a premium above the statutory minimum, which may further encourage them to reduce payroll, automate and cut hours.
Price increases are likely — like the “living wage surcharge” imposed at a SeaTac parking lot. Low-wage workers will be the first to feel the effect of many of the price hikes. No, scratch that, the first will be the newly unemployed workers of firms forced to downsize.
Labor leaders are considering taking the campaign to other major cities in the region and have accelerated pressure on lawmakers to bump the statewide minimum. New York, Chicago, Los Angeles and other blue metros have their own efforts underway.
There's a natural experiment underway in Seattle. It makes sense to let it play out. Remember, the second lemming has a choice. No need to play follow the leader over the cliff. Take a beat. See what happens. You just might save everyone a lot of misery.
Richard S. Davis is president of the Washington Research Council. Email rsdavis@simeonpartners.com

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