Washington State

Seattle's Businesses Buckling Under Increased Minimum Wage

A new University of Washington study finds that workers are losing $125 a month in lost hours thanks to the city's minimum wage law.

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Seattle city skyline

Seattle was one of the first major American cities to adopt a $15 in June of 2014.

At the time of its passage city officials were optimistic about the changes the new law would bring. Seattle mayor Ed Murray said the minimum wage hike was "a great step forward" in the fight against income inequality. "Seattle," he said, "has shown that we can help our employees without hurting our employers."

A newly released University of Washington (UW) study suggests strongly Seattle's lower wage workers and employers have taken a great step backward.

The current $13 minimum wage, scheduled to reach $15 for all employees by 2021, is costing workers $125 a month, according to the study. The study found that while wages for those earning under $19 an hour increased by 3 percent, the number of hours worked dropped by 9 percent, resulting in a steep net pay decrease.

Seattle businesses added roughly 43,000 jobs since the minimum wage law was passed, but eliminated the equivalent of 6,317 full time positions paying $19 an hour or less. Those new jobs produced an extra 23 million work hours while the jobs in the lower wage category lost 1.5 million work hours, according to the study.

This decline is reflected in the experience of business owners in the city.

Jillian Henze of the Seattle Restaurant Alliance tells Reason the "business model is evolving" for restaurants thanks to the minimum wage increase.

"Some of our members are reducing the number of employees or hours," she says. Other restaurants are adding service charges and fees to their checks to make up for the increased minimum wage costs.

Overall economic growth in the Seattle-area has boosted Peter Aaron's Elliot Bay Books, but not enough to make up for the effects of a higher minimum wage. "To some extent the payroll increase has been greater than the sales volume increase," Aaron tells Reason. Increasing labor costs have put "pressure on profitability."

Despite this, Aaron says sales growth has been robust enough prevent him from having to make drastic changes, crediting his location in the thriving Capitol Hill neighborhood of Seattle and the overall economic health of the city.

"Had we not seen the kind of sales growth that we have," he says, "I do not know that the business would have been able to continue."

Similar results have been witnessed in San Diego and Washington D.C., which saw relative declines in low wage and restaurant employment thanks to sky-high minimum wage increases.

Seattle businesses beginning July 1 are also facing a new "secure scheduling" ordinance that requires employers to guarantee their workers a certain number of hours a week, and penalizes them for changing work schedules to accommodate smaller staffs.

As Reason has covered, Seattle is also squeezing small businesses with an onerous soda tax, and the city is even mulling a municipal income tax.

All this has businesses thinking twice about expanding in the city says Henze.

"Members are asking themselves if they're going to open a new restaurant, is it going to be in Seattle with the current regulatory environment" she says. "We are asking a lot of different questions than we were previously."

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  1. “Some of our members are reducing the number of employees or hours,” she says. Other restaurants are adding service charges and fees to their checks to make up for the increased minimum wage costs.

    Seems like a pretty simple fix. Simply enact a minimum staffing law and a little price control.

    1. Who says libertarians don’t have solutions to real world problems!

    2. What a great leap forward that would be!

    3. Somebody didn’t read the article:

      Seattle businesses beginning July 1 are also facing a new “secure scheduling” ordinance that requires employers to guarantee their workers a certain number of hours a week, and penalizes them for changing work schedules to accommodate smaller staffs.

      1. Detroit it is, then!

      2. Seattle is honestly trying to make sure that no one ever moves there again except rich white liberals. My fianc?e wants to move up to the Northwest at some point because it’s just so gorgeous, but I’m afraid I just can’t bring myself to leave Texas because of shit like this. Even for a climate that matches my Irish disposition.

        1. I yearn to retire to the beautiful Monterey Bay area where I had lived for a year during my time in the service. But the stench of California government and taxes is so repellent.

        2. Seattle does tend to be a giant black vortex of horribly thought out policies that is always trying to suck in it’s neighbors to help pay for them but the region is more than that. Bellevue/Everett/Tacoma and surrounding environs offer the same beauty with a little less of the crazy.

        3. My theory is that governments tend to enact the worst policies they can get away with without fully crippling their economy. That’s why the west coast has such horrible governance: they know they can get away it and everyone will still want to live there.

          The states/cities in desolate wastelands have to do betttet, as the only thing keeping their citizens there is probably the lower tax rates.

  2. What the hell? Did the dispatcher at Reason mag send two guys out to cover the same story?

    1. I’m guessing the noob who wrote this took his time, getting it right, while Gillespie published two hours earlier by throwing up something that appeared to kinda maybe endorse a socialist alternative to the minimum wage.

      1. Maybe so, it’s still 2 people being assigned the identical story.

        1. Maybe they don’t assign stories (it’s a libertarian publication, and maybe they feel that assigning stories is too authoritarian) and just by coincidence they chose to cover the same story?

          1. No.

        2. Maybe so, it’s still 2 people being assigned the identical story.

          Let’s see which one makes it to next week.

          1. Britches is meticulous, but The Jacket has eldritch abilities beyond the ken of mortals. It’ll be quite the contest.

            1. With their combined powers, they could form Captain Libertarian Moment, but they are missing The Hair.

              1. Reason needs someone who could deserve the nickname ‘the Shirt.’ Then we could call Reason ‘the Outfit.’

  3. Allen says sales growth has been robust enough prevent him from having to make drastic changes, crediting his location in the thriving Capitol Hill neighborhood of Seattle and the overall economic health of the city.

    “Had we not seen the kind of sales growth that we have,” he says, “I do not know that the business would have been able to continue.”

    IOW, they’re one economic downturn away from closing up shop…

    Seattle businesses beginning July 1 are also facing a new “secure scheduling” ordinance that requires employers to guarantee their workers a certain number of hours a week, and penalizes them for changing work schedules to accommodate smaller staffs.

    As Reason has covered, Seattle is also squeezing small businesses with an onerous soda tax, and the city is even mulling a municipal income tax.

    …which is guaranteed to happen sooner rather than later, thanks to idiotic policies like these.

    1. If someone gave you the mayors crown for a day and told you to turn Seattle into Detroit, this is what you’d come up with.

      1. Or as Sterling Archer might say: “Do you want Detroit? Because this how you get Detroit!”

    2. Tbey have an incredible run of bad luck building up.

    3. The future downturn will be because Republicans.

  4. If lawmakers could pencil whip everybody into the middle class, then do it right. $20/hour minimum wage. Boom. Problem solved and totally not an economic head shot.

    1. Why middle class?

      Make them all rich.

      $1B a year for EVERYBODY!!!

      Hell, a 15% income tax on 300 or so million ALL making $1B/yr would wipe our entire national debt, easily, in one year.

      1. Just think of the multiplier on the spending enabled by the new tax revenue!

        1. Not sure I can. Might have to conference with some high-level mathematicians to decipher numbers of that magnitude.

          “In mathematical terms, the net GDP generated by such increased government spending would be…a veritable shit ton”

      2. Better yet: everyone gets their own star and all orbiting planets. All you have to do is find a way to get there and you’ve got as much free real estate as you could ever want.

  5. The WaPo story about this is unbelievable in it’s perspective:

    The paper’s conclusions contradict years of research on the minimum wage.

    The premise behind this statement is that the research was indisputable. Undeniable. CONSENSUS!

    Economists might not readily dismiss the new study as an outlier, however.

    A FUCKING OUTLIER?!? FFS, it’s the first study of a real world extreme minimum wage case. Now it’s a fucking outlier because it doesn’t agree with your pre-conceived CONSENSUS?

    As a result, the paper is likely to upend a debate that has continued among economists, politicians, businesses and labor organizers for decades.

    UPEND? Are you even remotely aware of the real debate between real economists in academia? There’s been a healthy minimum wage debate for 50 years…that remains ongoing.

    Fucking reporters and their bias.

    1. The paper’s conclusions contradict years of research on the minimum wage.

      I think that the main reason minimum wage hasn’t done more damage in the past is that it has usually been low enough that it for the most part stayed below prevailing wages. Now people are trying to use it to push wages up and that’s going to cause bigger problems.

      1. Exactly. Prior research has been challenged because isolating the effect of the wage change is difficult when it’s small and incremental, because it fades into the noise of the overall economy. This is the first application of the Minimum Wage at such a scale. And thus, everyone following this debate has been waiting for the first couple of years to play out. And there were no shortage of people predicting it’s abject failure.

        But to the WaPo reporter, this is some sort of a world shaking consensus rattling surprise.

        1. >>>This is the first application of the Minimum Wage at such a scale.

          boiled the frog.

      2. It’s also quite difficult to determine how many jobs would’ve been created without the increase.

        1. Created or saved?

      3. Granted, it has been 37 years since I graduated college with a degree in economics, but there are no “years of research” to support any claim that increasing minimum-wages won’t hurt low income workers. There was one short term study of one minimum wage increase among fast food employees in New Jersey that was constantly repeated and cited. That does not constitute “years of research.”

        To the contrary, all the economics classes I took taught that raising the minimum wage would depress low income employment.

        1. That NJ study always seemed flawed to me. If I remember right, they only counted the number of people who lost their job because of the increase. And, decided since hardly anyone was laid off, the increase had little impact on jobs. They should have studied the number of jobs created in the neighboring jurisdiction compared to NJ before and after the increase. Since fast food restaurants don’t typically staff employees they don’t need, they can’t really lay people off when the labor cost are arbitrarily raised. But, I’ll bet you a big wad of cash that neighboring communities continued to add fast food workers while NJ stagnated or declined.

          1. Other questions:

            Was this a time of low unemployment generally? Was this a period of inflation such that a wage increase on paper amounted to no real change in real terms? Was it an increase that really increased wages, or that merely ratified the prevailing level of wages already established by the market?

            One thing we can say for certain is that it most definitely was not a series of programmatic minimum wage increases taking effect over a period of years. And employer may be able to swallow a one time increase more readily than the employer can afford a series of increases in successive years.

        2. And Card and Kruegger was thoroughly debunked by Neumark et al. The weight of evidence (dare I say consensus?) is against the wage hikers.

          1. Newmarket and Wascher write a great book Years back outlining the history of minimum wage research going back to the Roosevelt era.

            Also, anyone who reads Don Boudreaux’s blog knows there’s a steady stream of research suggesting minimum wages cause disemployment. The ‘years of research’ remark was pure fiction.

      4. The problem is that in years past the minimum wage was set just low enough to mostly only keep black folk out of work, but now white liberals are trying to make the minimum wage into a vehicle for transferring wealth to their barrister children.

        I don’t think they understand why the minimum wage was invented at all, frankly.

        Point at a progressive program, of any stripe really, and I’ll show you a program intended to keep the black man down. I’m really not even trying to exaggerate, I don’t think there’s a more patently racist group around than the progressives. They’re just acceptably good at lying about it, and apparently their ‘wealth transfers’ are enough to keep people’s mouths shut on what it’s done to minorities in the past 50 years or so.

    2. Echo chambers are difficult to penetrate with alternative facts

      1. Aren’t these the people who are supposed to love science, hate fake news, base all their judgments on reality, and call for the imprisonment of anybody who disputes climate change?

        Perhaps we should start calling them supply and demand deniers.

    3. You gotta wonder if the economists they keep referencing are reporters on economic affairs. Why would any economist not named Card or Krueger even humor the idea of considering this study an outlier? It is consistent with 200 years of economic theory.

    4. The paper’s conclusions contradict years of research on the minimum wage.

      “Galileo’s findings contradict years of research on the earth’s position in the universe.”

  6. >>>Increasing labor costs have put “pressure on profitability.”

    10th grade Econ, Peter Allen…

    1. Fortunately, everyone in Seattle agrees that profits are evil.

      1. Pete and Reality meet face-to-face…

        1. Won’t somebody please think of the underemployed baristas and shop assistants?!

          1. love Helen Lovejoy…

      2. Wow, is Islamophobia that bad there?

  7. I know someone will bring it up, but there were multiple studies with conflicting results. That being said, the study that’s being used in this story is the more accurate one from everything I’ve read so far.

    It shouldn’t need to be said that blowing the roof off the labor price floor would cause a whole lot of problems for marginal businesses, but hey thanks for the case study Seattle. I hope your voters screw you over for this, but something tells me they won’t learn the lesson.

    Nothing like a minimum wage to keep those minorities from working, am I right? Or…wait…are we not using that as the reason we institute these anymore? Lord knows we did when they were invented, but somehow these are not racist anymore because…reasons.

    1. “Had we not seen the kind of sales growth that we have,” he says, “I do not know that the business would have been able to continue.”

      “I can’t be responsible for every under capitalized business out there.” Seattle mayor channeling Hillary Clinton

    2. Are you talking about the berkeley study of Seattle min wage hike? Turns out the UW researchers had access to more and better data. When they limit their study to the same data/methods used by berks they get the berk result. So there’s really no conflict.

      1. Over at Marginal Revolution, Tyler Cowen links to someone talking about the study. The Berkeley group is apparently not even remotely trustworthy because they always find the same result

      2. That is exactly the one I’m talking about, and yes from everything I’ve read the UW study is the more accurate study. Not that I really even needed to be told that given the other one was from Berkeley, but hey occasionally that school gets something right. Just not…this time. Or most times.

    3. Like hell Seattleites will learn from this.

      When we had a property tax bill up for vote, my husband ended up having several conversations with Amazon tech workers where they said they’d vote for it because it didn’t affect them – they rented.

      Seattle population – young, educated and dumb or old, hippy and dumb. The rest live elsewhere.

      1. That’s just sad. These people vote.

  8. Here is the question I never see posed in these articles or the comment section: How are these liberal bastions always so economically dominant despite their terrible economic policies? Are liberals just naturally more productive than conservatives, but as a trade-off are cursed by economic illiteracy to keep things fair?

    1. I think it’s a case of reversed causation –

      Strong economies generate excess wealth which means people are able to ignore or minimize the impact of bad economic policies. It’s when the economies go bust that it turns into a death spiral which has trouble rebounding.

      Or – Detroit.

    2. Re: Magnitogorsk,

      How are these liberal bastions always so economically dominant despite their terrible economic policies?

      They weren’t liberal bastions in the beginning. I would posit to you the question how come a liberal bastion such as Detroit, which used to be the center of American industrial might, is so poor and depopulated?

  9. Still chuckling about this one… the progies will never believe it, will find some way to deny it, in fact. Perhaps we should just start calling them “economics deniers”?

    1. Re: Ground truth,

      Perhaps we should just start calling them “economics deniers”?

      They’re reality deniers. The same people who argue that there is no such thing as objective truth can also argue with a straight face that The Science Is Settled?

      1. Scary thing is, you’re right, they are the same people.

  10. Must…prog…harder. Must…prog…HARDER!

  11. I say Seatlins should be encouraged to enact price controls and legislate the numbers of workers and any other crazy prog bs they can come up with. They should be encouraged to fuck themselves good and hard. The only way for this nonsense to end is for it to be allowed to fail spectacularly. It will, when they notice the suburbs are booming and the city is dying, or maybe they won’t… ie Detroit

    1. Totally agree, let their “experiment” play it in a real world setting; but as you have already seen the take on the first real data from minimum wage as a living wage fiasco, they will spin the results just as the communists did when not explaining the failure of their dysfunctional economics. It will always be a “good” policy because of the dubious intentions to help the poor, thwarted by “bad” politics from the greedy. Count on it. You can’t fix stupid, especially when it just really really wants to stay stupid. Socialism is all the rage again, and Marxists apologists are as popular as ever.

  12. Like I argued in the other article, minimum wage laws are a roundabout and ill conceived way of trying to better distribute wealth, by attempting to help poor laborers. It is ill conceived for a number of reasons: 1) in the food and restaurant industry, profit margins can be often razor thin, so if it goes too high, it can have the effect of shutting down business or costing jobs. Whereas in other industries, where profits have been comfortably extracted from labor through consolidation, it will probably work out fine but ultimately will find sophisticated employers trying to get around the system (see generally the negative consequences of employer based health care requirements for employees working over 30 hours a week). 2) minimum wage laws dont fix increasing automation concerns 3) it would be better and simpler to distribute wealth via taxes.

    We have mistakenly tried to use the old model of employer-benefits and wages to deliver social goods to the poor when we should be doing it directly. Get rid of employer based health care. Get rid of minimum wage laws. Create a UBI floor (as the other article suggested) and create a proper social baseline that will allow the markets to function without direct regulatory influence.

  13. Thanks for the information provided! It’s the good news for those living in Seattle and it’s great that people will have an opportunity to make more money. I hope that the situation will become even better in the future and Seattle’s citizenship will be able to make more. Definitely, it’s a good sign for the economy and a proof of the economic progress. Hopefully, the minimum wage increasing will help people to feel more financially secured and they will not need to use BusinessLoanGate.com to get money help.

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