Seattle’s $15 minimum wage: Buyer’s remorse before the sale

Even as it was being announced and celebrated by some members of his income inequality committee, the political leaders acknowledged the Seattle mayor’s $15 minimum wage proposal would undergo tweaking before it was adopted by the city council. Remember Councilmember Nick Licata’s comments about legislators liking to get their “fingerprints” on such things.

There’s been a lot of talk the last few days about how the mayor’s plan, a work in progress, may be coming apart. Crosscut offers one perspective.

Councilmember Sally Clark, who chairs the Committee on Minimum Wage and Income Inequality, sought to play down suggestions that the mayor’s compromise is unraveling. Council’s questions and exploration of changes to his suggested legislation are a normal part of the process. “This is what we get paid to do,” Clark said. But, as Publicola reports, labor leaders are already troubled by the possibility of a two-tiered payment system where businesses get to pay lower wages to teenagers and some trainees. If that’s going to happen, labor leaders want the council to compensate by introducing alternative, worker-friendly changes to the mayor’s plan. 

Labor’s pains are also examined by the AP. Union reps on the mayor’s committee, responding to a document prepared by city staff that appeared too friendly to business, sent a letter to the city council.

But now, business groups are pushing for a training wage, a longer phase-in for nonprofits of any size, and no minimum-wage increase for employers with less than 10 employees. Their proposals were expressed in a letter prepared by City Council staff.

Even sympathetic business owners are rethinking their positions, as KUOW reports. (The story is well worth a listen.)

Jody Hall owns Cupcake Royale, a collection of seven neighborhood coffee shops that sell artisan cupcakes and ice cream. She employs about 100 people…

…after publicly endorsing [the mayor’s] efforts, she is having serious second thoughts. “I really have a hard time,” Hall said. “Even though I signed support for a seven-year phase in with the mayor, this is keeping me up at night like nothing ever has.”

Well, as Forbes reports, people support raising the minimum wage until told the costs.

The polls show most people support raising the minimum wage when it is presented as a free lunch, with no downside. Once people make the link between the benefit (higher pay for some) and the cost (fewer jobs, higher prices) the level of support shrinks to a clear minority. 

Don’t believe the polls? How about this anecdote from SeaTac, which just bumped the minimum to $15? Assunta Ng, publisher of Northwest Asian Weekly, recounts a couple of conversation she had with SeaTac restaurant workers. It’s a brief story, please read it. Here’s a snippet.

“Are you happy with the $15 wage?” I asked the full-time cleaning lady.

“It sounds good, but it’s not good,” the woman said.

“Why?” I asked.

“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.

The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.

The consequences don’t take long to show up. No wonder some supporters of the $15 minimum wage are showing signs of buyer’s remorse. Better now than after the deal is sealed.

Minimum wage, maximum hassle. Uncompromising activists threaten to take $15 to November ballot.

My column today’s looks at the ongoing wrangling in Seattle City Hall over how to get to a $15 minimum wage.

What Seattle does matters statewide. So far, no one has devised a containment strategy to prevent Seattle politics from spreading. It’s not Vegas. What happens in Seattle doesn’t stay in Seattle.

…Here’s what’s clear: The mayor and most members of his committee want to get to a $15 citywide minimum wage quickly, they want it to affect everyone and they will create a new enforcement system to assure compliance.

It remains complicated. Does $15 include tips and other benefits? How small is a small business? How long a phase-in? What’s enforcement entail?

It’s likely activists will push the measure to the ballot, regardless of the consequences for low-wage, inexperienced workers and the businesses that employ them.
For an excellent account of what the boost to $15 would mean, I recommend research done by Dr. Peter Nickerson, a Seattle economist. It’s the clearest, most accessible discussion of the minimum wage debate I’ve seen. (Summary, Full Report) The crux:

Our research, using actual 2013 wage and hour data from the Washington State Employment Security Department, shows that a $15.00 minimum wage would cause thousands of firms, most of them small, to see their labor costs increase, some dramatically. For many firms the increases will be in excess of 25 percent and for a small number over 50 percent. These sorts of labor cost increases are far larger than any ever seen in a minimum wage increase and will most certainly cause job loss, especially at marginal firms and for employees with very few skills. The increase to $15.00 would also cause loss of hours and numerous distortions in the labor market. Our estimates of job loss range from over 4,700 to almost 19,000 jobs.

In the most recent issue of AWB’s Washington Business, I have a column arguing that the $15 minimum wage is just the beginning.

The minimum wage campaigns represent labor’s attempt to penetrate union-resistant service, retail and restaurant businesses. It’s just an opening bid. Next, as we’ve seen here, they’ll agitate for paid sick leave, guaranteed vacation, and union-friendly organizing policies. Every business in the state will eventually be affected.

When the “defining challenge” is income inequality, the battles are endless. And so are the risks to free enterprise. It would be a mistake to think this is someone else’s fight.

We all have a stake in the Seattle campaign.

No recommendation from Seattle mayor on how to get to $15 minimum wage. Yet.

Yesterday’s press conference (video) had Seattle Mayor Ed Murray explaining why he was not announcing his proposal for a $15 minimum wage. Here’s how Publicola characterized it.

At a press briefing this afternoon—the official press release read, “Mayor Murray to announce his proposal for raising the minimum wage in Seattle”—Mayor Ed Murray did not announce his proposal for raising the minimum wage in Seattle.

He thinks his Income Inequality Advisory Committee, the group he named in December to come up with a plan, is close to meeting that goal. Though there may be a slim majority for a recommendation, he’s hoping for a supermajority – 60 percent – to build civic momentum and possibly avoid several competing ballot issues.

Murray said Thursday there still might be a ballot initiative, but he hoped that with a strong proposal from his committee, “I believe we can avoid two, three or more versions of what to do on the ballot.”

If labor had to spend millions on an initiative and business had to spend that much when they should be creating jobs, the atmosphere would be poisoned, Murray said, calling that result a “version of class warfare.”

Councilmember Kshama Sawant had an answer to that, one that suggests the ballot game is on.

“Our goal now is to stop focusing on the committee. The committee is done. It is over,” Sawant said.  In response to Murray’s fear of a class war, she said: “We live in a capitalist system. It is class warfare.”

Murray was specific about the principles the committee has agreed to. Here’s the Puget Sound Business Journal’s summary.

  • The minimum wage should be raised to $15 an hour.
  • It would be difficult for small businesses and non-profits to start paying $15 now. “Given that, getting to $15 should be phased in,” Murray said.
  • Once $15 an hour is attained, future increases to the minimum wage should be based on the consumer price index.
  • No employer would be exempt from paying $15 an hour.
  • Strong enforcement by the city of new wage rules should be part of the program.
  • “There would be some benefits that would be phased out as the minimum wage is phased in,” Murray said.

What’s in the $15, a clearly arbitrary number in the first place, is a matter of dispute. Business groups want tip income to count; labor disagrees.

Washington is one of seven states that does not allow a lower minimum wage for tipped workers. Waiters, hairdressers, valets and other service workers must be paid a base hourly rate of at least $9.32, regardless of how much they make in tips. By comparison, the federal sub-minimum wage for tipped workers is $2.13 an hour, versus $7.25 for non-tipped employees.

David Rolf, a vice president of the Service Employees International Union and co-chair of the mayor’s task force, said labor activists worry that a carve-out for tipped workers in Seattle would set a dangerous precedent for the rest of the state.

“Organized labor is strongly concerned that if Seattle acts to redefine wages, it will open the door to lowering the state minimum wage,” Rolf said.

And, as Don Brunell writes, there are other considerations.

as any employer knows, there is much more to employee compensation than wages. According to a March, 2014 report from the U.S. Bureau of Labor Statistics, private-sector employers pay an additional 30 percent on top of wages for employee benefits such as Social Security, Medicare, workers’ compensation insurance, unemployment insurance, paid leave, health care, retirement, etc.

Seattle Times editorial writer Jonathan Martin takes a look at the impact of a $15 minimum on nonprofits. The phase-in won’t be much help.

Most nonprofits lean heavily on federal and state funds; 97 percent of Hobson’s budget is government contracts. What’s the likelihood that Congress, or the state Legislature, is going to bump up those contracts to account for a minimum wage in Seattle that would be higher than every other city in the country?

The other main income source for nonprofits is from donations. Smart nonprofits already tap this source as hard as they can. Are they expected to find a magical new philanthropic fountain to pay $15?

As Martin discovered, a prominent backer of the $15 wage is not immune to magical thinking.

A $15 wage, [proponent Nick] Hanauer suggested, will eventually reduce demand – for addiction treatment, for mental-health counseling, for domestic-violence intervention, for homeless outreach. “Eventually social services will recalibrate to a smaller human services problem,” he said.

That is, at best, utopian thinking. At worst, it’s a fantastical theory that will put a vise on already struggling human services.

Sawant wants a $15 wage, no exemptions, no tip credit, no consideration of other compensation, and only a 3-year phase-in.

Murray says he wants more time “to get it right.” When you’re mandating a 60 percent jump in the minimum wage, I doubt there’s ever going to be that much time.

Review roundup: Some contrarian take’s on Piketty’s “Capital in the 21st Century”

I’ve not read the book. Yet. But I’ve enjoyed reading the reviews of Thomas Piketty’s controversial, celebrated, and widely cited book on income inequality, capital and labor. Here are a few for you.

Robert J. Samuelson in the Washington Post:

Though Piketty is an economist, his book is essentially a work of political science. He objects to extreme economic inequality because it offends democracy: Too much power is conferred on too few. His economic analysis sometimes seems skewed to fit his political agenda.

DIana Furchtgott-Roth at Real Clear Markets:

Piketty’s analysis of the advantages of increasing the minimum wage neglects negative employment effects on low-skill individuals. He states that increasing the minimum wage lowers inequality at the bottom of the income distribution by raising the pay of low-income individuals.

That is partly correct. Measured inequality declines because the difference between the lowest wage in the economy and the average wage is reduced, even if some of the low-wage workers lose their jobs because they are no longer employable.

Tyler Cowen in Foreign Affairs (Highly recommended.)

The final chapters of the book, which contain Piketty’s policy recommendations, are more ideological than analytic. In these sections, Piketty’s preconceptions lead to some untenable conclusions. His main proposal is a comprehensive international agreement to establish a progressive tax on individual wealth, defined to include every kind of asset….He hedges a bit on the precise numbers but suggests that wealth below 200,000 euros be taxed at a rate of 0.1 percent, wealth between 200,000 and one million euros at 0.5 percent, wealth between one million and five million euros at 1.0 percent, and wealth above five million euros at 2.0 percent.

Although he recognizes the obvious political infeasibility of such a plan, Piketty has nothing to say about the practical difficulties, distorting effects, and potential for abuse that would inevitably accompany such intense government control of the economy.

Shorter Cowen

Guy Sorman in City Journal:

Piketty’s book is less interested in economic efficiency than in social justice. “Building a just society,” he writes, “is the purpose of democracy.” For Piketty, “just” is the equivalent of “egalitarian.” He doesn’t explain why this should be so, though his equation of the two surely explains why Capital in the Twenty-First Century has political appeal among American academics, the media, and liberal politicians on both sides of the Atlantic—from President Obama to French president François Hollande.

Holman Jenkins in the Wall Street Journal:

In “Capital in the Twenty-First Century,” the Thomas Piketty book so adulated by liberals, the French economist argues that capitalism is innately flawed by a rich-get-richer, everybody-else-stagnates dynamic that has stayed hidden for the past half century by serendipitous factors. Somewhat disconsolately for his story, though, the U.S. has exhibited the wrong kind of income inequality, caused not by rising inheritances of the idle rich but soaring “labor earnings” of the managerial class, which he attributes to self-dealing by executives and boards.

As Cowen writes, “It’s a very important book,” regardless of whether you agree with his policy prescriptions.

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Mobility math: 12 Percent of Americans can count on being in the 1 Percent

Static formulations aside, there’s some good news about social and economic mobility. An article in the New York Times by social welfare professor Mark Rank lays it out:

The picture drawn of the 1 percent has been that of a static population, just as the 99 percent is often portrayed as unchanging. 

But, he writes:

It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution.

As Rank notes, this suggests a higher degree of mobility – up and down – than is suggested by the class warriors.

Economist Mark Perry has additional analysis.

NYT looks at Seattle minimum wage, plus some inconvenient facts on possible impacts

The New York Times uses Seattle’s $15 minimum wage initiative (small “I” so far) to highlight efforts across the country to combat income inequality by raising the wage floor. The story by Annie Lowrey leads by citing the travails of a low-wage worker whose hours have been cut back. By now, we’re accustomed to such tales as they play heavily into the pro-wage-hike campaigns. But she also offers some necessary perspective on the limitations cities face.

“Cities just don’t have the tax and trade policy and tools to rein back inequality in a significant way,” said Alan Berube, a senior fellow at the Brookings Institution in Washington, D.C. “They can’t really redistribute income in the way the federal government can, so they are reaching for the levers they have.”

She offers a quick overview of the changes in Seattle’s economy over time, plus this take on the city’s politics.

Seattle’s politicians — who generally range from left to far-left …

I urge you to read the whole thing, and not just because I get a mention toward the end.

“When you jump to $15, you change the game substantially,” said Richard Davis of the Washington Research Council, a local think tank. “Automation becomes a more attractive substitution than when you’re making a more incremental increase.” Businesses might move beyond the city limit, and inequality might even jump.

In an unrelated NYT piece, economist Tyler Cowen examines trends in automation that should not be overlooked by those pushing the wage hike. Although throughout history advancements in technology have caused some jobs to disappear, the labor market has generally recovered as workers found employment in other fields. This may be different, Cowen writes in his thoughtful column.

…technologically related unemployment — or, even worse, the phenomenon of people falling out of the labor force altogether because of technology — may prove a tougher problem this time around.

Labor markets just aren’t as flexible these days for workers, especially for men at the bottom end of the skills distribution.

The bottom end of the skills distribution is where most minimum wage workers are found. Unemployment here remains stubbornly high, particularly among the least educated.

Even those workers who benefit from the higher minimum wage may see a large chunk of the wage hike offset by payroll taxes and lost benefits.

Finally, in considering efforts to combat income inequality, Gary Burtless, a Brooking Institution fellow, shares insights drawn from analysis done by the Congressional Budget Office.

Some crucial findings of the new study may come as a surprise, especially to people who believe incomes of the poor and middle class have stagnated since the turn of the century while incomes at the top have soared. The CBO’s latest numbers show the opposite is true. Since 2000 pre-tax and after-tax incomes have improved among Americans in the bottom 90% of the income distribution.

Unemployment remains our biggest problem, one that attacks on income inequality will not solve and may possible make worse.

Amid a flurry of minimum wage actions across the country, Seattle’s proposed $15 floor stands alone

The New York Times reports on the presidential push for a higher federal minimum wage. While this Congress is unlikely to approve it, the White House claims credit for the emergence of state and local actions to raise the minimum.

In the last 14 months, since Mr. Obama first called for the wage increase in his 2013 State of the Union address, seven states and the District of Columbia have raised their own minimum wages, and 34 states have begun legislative debates on the matter. Activists in an additional eight states are pursuing ballot referendums this year to demand an increase in wages for their lowest-paid workers.

The coordination is impressive.

The White House is also running a weekly strategy session with Capitol Hill lawmakers, top White House political advisers and outside groups like labor unions who are eager to see a higher minimum wage.

Business resistance is stepping up.

The National Retail Federation announced on Tuesday that it will treat votes in Congress for a minimum-wage increase as a negative factor in its rankings of business-friendly lawmakers. David French, the group’s top lobbyist, said Mr. Obama was pushing an issue that would not help the economy.

“There’s so much collateral damage you can do to job creation by setting a minimum wage,” Mr. French said. “The higher you set that minimum wage, the more collateral damage you do. Politics is being played here.”

No doubt.

Meanwhile, Seattle clings to the most, ahem, ambitious goal of a $15 wage. Seattle Times editorial writer Jonathan Martin notes the uncharted territory.

…an across-the-board increase from the already-top-in-the-nation state wage of $9.32 to $15 is, well, “significantly beyond existing local, state or federal mandates.” And the experience of the nine other cities and counties with higher minimum wages shows they included a raft of trade-offs and concessions.

He goes into more detail in his blog post (linked above) and his column.

Meanwhile, Publicola reports on a proposal from a newly-formed group, Forward Seattle, calling for a $12.50 wage, the Main Street Alliance’s decision to wait a bit before taking an official position, and rumors that the Seattle Mayor’s minimum wage committee seems to be struggling.

Sometimes it feels like this debate has gone on forever. And we’re eight months away from Election Day.

Income Inequality Symposium: Trade-offs? What Trade-offs?

(Previous posts on the symposium are here, here, here and here.)

At the same time as the panel I discussed in the last post, there was one that was held in another building, in a room with limited seating, titled “Strategies for investing in workers.” This was moderated by Maud Daudon of the Seattle Metropolitan Chamber of Commerce. Panelists included Jasmine Donovan of Dick’s, Wilson Goode of the Philadelphia City Council, Ken Meidell of Outdoor Research, Joe Fugere of Tutta Bella, and Michelle Rupp of NRG Insurance. Kriss reports that the panelists talked mostly about how they treat their workforce. For example, Rupp said that they started allowing employees to take whatever vacation they want, rather than allowing set hours. Essentially, the message was that if you treat your employees well, they’ll treat you well.

The last session of the day was called “Understanding trade-offs.” Did the symposium finally get in some opposing viewpoints? Not really.

The panel consisted of Heather Boushey, a pro-minimum wage increase PhD economist from the Washington Center for Equitable Growth; Dick Conway of the Puget Sound Forecaster; Saru Jayaraman, co-founder of Restaurant Opportunities Centers United (a group that unionizes restaurant workers); Eric Pravitz, owner of Hoa Nail Salons in Seattle; and Allen Rickert, owner of Top Ten Toys in Seattle.

Seattle city councilmember Bruce Harrell was the moderator. He said that (paraphrasing) “since 9 a.m. we’ve been inundated with data and we don’t need more.” The question, to him, was: Should we go to $15 or compromise?

Conway suggested that a fair minimum wage—taking into account inflation, labor productivity gains, cost of living, and “Washington’s regressive state and local tax system” might be $13.48.

Jayaraman railed against tip credits, saying that “women have to sell themselves” if any of their income comes from tips. (To big applause and acclamation from the audience.) Pravitz, partly in response to Jayaraman, said that tipping is a cultural thing in the U.S. He pays his employees more than minimum wage and provides raises when workers prove themselves. He would like to see a tip credit—otherwise he would have to raise prices. Rickert also talked about how an increase in the minimum wage would affect his business. He said, for example, that it would affect his willingness to take chances on people.

All in all, the symposium was very disappointing. There was no consideration given to opposing viewpoints, and hardly any acknowledgement that they even exist. The tone on the panels and in the audience was anti-business.

Income Inequality Symposium: Those alien business people

(Previous posts on the symposium are here, here and here.)

In the afternoon, there were two breakout sessions that occurred at the same time. The one I attended was titled “How have other cities addressed income inequality? Views from experts and elected officials from cities across the U.S.” It was moderated by Eric Liu, who wrote a progressive book (The True Patriot) with Nick Hanauer. The “expert” on the panel was Paul Sonn of the National Employment Law Project, a group that advocates for minimum wage increases. The elected officials were all Democrats, save for the Socialist Kshama Sawant, a Seattle city councilmember.

Liu noted that DC has become less consequential in making the change people want; instead, change is happening in cities. This was a panel about how to make this happen here in Seattle and everywhere (because of course everyone agrees on the premise).

Sonn said that the driving forces behind the movement in cities to increase the minimum wage are: high regional living costs, the need to build momentum for state increases, and that the reforms are hard to win at the state level. He claimed that there is substantial research that job effects are minimal, and that wage increases are always less controversial than expected—according to him, business finds out it’s not so bad after all.

Sawant said that no matter the political views of the audience, if they were listening earlier in the day, the “conclusion presented by economists is conclusive”—no negative impacts from increasing the minimum. Don Rocha, a San Jose city councilmember, said the sky hasn’t fallen in San Jose since they increased their minimum wage.

David Alvarez is a progressive city councilmember who ran for mayor of San Diego recently. He lost, but he said that progressives there have had victories nonetheless, as the city is now talking about a minimum wage increase. Sometimes, he said, it’s important to lose to win. He said that people said he lost because he didn’t moderate his views. But, he said, earlier this week he met with the restaurant association in San Diego who told him that if the city council moves on an extreme increase in the minimum wage, they would move their own initiative calling for a more moderate increase. “That to me is already a victory,” Alvarez said.

Liu asked the panel how they talk to business people (as if they’re from another planet). Sawant said (I’m paraphrasing), “we agree on many things with small business in that capitalism rewards the biggest businesses, and small businesses find it hard to survive. Big business is gaining at the expense of consumers and small business.” John Arena, a Chicago alder, said “I listen. They have a lot of fear coming out of the recession. Then I try to introduce new information.” Alvarez echoed him.

Income Inequality Symposium: No, economists do not all agree on the impacts of minimum wage increases

(Previous posts on the symposium are here and here.)

The third panel was a presentation by three University of Washington economists (Marieka Klawitter, Mark Long and Bob Plotnick). The Income Inequality Advisory Committee had commissioned a study from them looking at who would be affected by a minimum wage increase. The paper specifies that its analysis does not contemplate the possibility that

businesses may close or relocate and thus reduce the size of their workforce or the number of hours worked. It does not include an estimate of a change in labor supply, including changes in the skill and composition of persons who would seek more or fewer hours given the higher wage.

Still, all three professors had signed on to the letter from hundreds of economists supporting an increase in the national minimum wage to $10.10. A similar letter was signed by hundreds of economists opposed to the increase—including three other UW economists, who were presumably not invited to participate in the symposium.

Next up was a panel consisting of Michael Reich and Ken Jacobs, economists at the University of California-Berkeley. They also prepared a report for the Income Inequality Advisory Committee, which is more measured than their presentation. They write,

our assessment of the research evidence indicates that minimum wage mandates raise the incomes of low-wage workers and their families, and that the costs to businesses are absorbed largely by reduced turnover costs and by small price increases among restaurants. That said, it is important to emphasize that existing research is necessarily limited to the range of minimum wage increases that have been implemented to date. While these studies are suggestive, they cannot tell us what is likely to happen when minimum wages are increased significantly beyond current local, state, or general mandates.

Additionally, “Labor economists continue to debate the actual impacts of the minimum wage on employment and hours.” To be sure, this is a controversial area. Many studies have found that there are indeed employment impacts—for example, work by economists David Neumark, Jonathan Meer and Jeremy West (who would have been good additional speakers for the symposium). (See our report on SeaTac’s Proposition 1 for more.)

At this point, when questions were allowed, two Seattle restaurant owners stood up to talk about their restaurants, and to talk about how this would affect them. One mentioned a chef in San Francisco who said that all of the cost increases being imposed there are having a negative cumulative impact; Reich and Jacobs cut her off, saying that anecdotes like that just don’t fit the data. (The audience, by the way, applauded the economists for interrupting the business owners.)