Guest: How businesses will respond to $15 minimum wage
A survey shows that businesses expect to raise prices, cut staff and close locations in Seattle in response to the new minimum-wage law, according to guest columnist Michael Saltsman.
Special to The Times
THE scene on June 2 at City Hall was exuberant, as Seattle’s nine councilmembers voted unanimously to raise the city’s minimum wage to $15 an hour — the highest in the nation — over the next seven years. Outside the city limits, however, reactions have been more muted. Even columnists and economists who are traditionally supportive of a higher wage floor struck a cautious tone, wondering if Seattle had indeed gone too far.
Only time will tell for sure whether the law’s benefits outweigh the consequences for Seattle. But a new survey of affected businesses in the city limits suggests that skeptics were right to be concerned.
Socialist Alternative Councilmember Kshama Sawant was the main proponent of the $15 ordinance. She and her supporters denied that the policy change would hurt businesses in the city. In one interview, Sawant said there need be “no unintended consequences” in the push for a $15 minimum. And a pamphlet that the 15 Now organization passed out during the campaign said that any additional costs could come out of “extravagant profits” rather than consumers’ pockets.
Our survey results tell a different story. We contracted with a survey research firm to contact Seattle businesses in a broad range of industries likely to be impacted by the law. We received responses from 265 businesses, nearly 90 percent of which had fewer than 50 employees, and half of which had fewer than 10 employees.
These are not businesses you’d describe as extravagant. Not surprisingly, nearly 70 percent of respondents in Seattle said that the $15 minimum wage would cause a “big increase” in their labor costs, and over 60 percent planned to pass on what they could to customers through higher prices.
But price increases are not a silver bullet. After all, were businesses able to raise their prices at will without reducing sales, the minimum wage would be an afterthought. Customers have a choice: If prices increase, they could dine out less often or see one fewer movie a month. That’s why businesses are forced to adapt to a mandated wage hike in other ways.
In Seattle, 42 percent of surveyed employers were “very likely” to reduce the number of employees per shift or overall staffing levels as a direct consequence of the law. Similarly, 44 percent reported that they were “very likely” to scale back on employees’ hours to help offset the increased cost of the law. That’s particularly bad news for the Seattle metro area, where the unemployment rate for 16- to 19-year-olds is already north of 30 percent — due in part to Washington state’s already-high minimum wage.
Perhaps most concerning about the $15 proposal is that some businesses anticipated going beyond an increase in prices or a reduction in staffing levels. More than 43 percent of respondents said it was “very likely” they would limit future expansion in Seattle in response to the law. One in seven respondents is even “very likely” to close a current location in the city limits.
Of course, it’s possible that our responses just represent those businesses most upset by the new ordinance. But even Seattle’s City Council members were sensitive to the possibility of unintended consequences, as evidenced by the final ordinance that phases in a higher wage over seven years for smaller businesses and establishes a temporary credit for tip income earned on the job. These small concessions can’t hide the fact that there’s nothing modest about a 60-percent jump in the minimum wage.
Seattle is the first city in the country to pass a $15 minimum wage. Our survey suggests it will now be the first city to find out why that’s a bad idea.
Michael Saltsman is research director at the Employment Policies Institute, which receives support from restaurants, foundations, and individuals.