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."