Cost of living, employment effects complicate minimum wage debate

Supporters of a $15 minimum wage continue to press their case. There’s now talk of a $15 national minimum, guaranteeing the issue will feature in the presidential campaigns through Election Day 2016. Attention will focus on the cities, including Seattle, that have already adopted the $15 standard. The early reports will likely be largely anecdotal. There’s not much data in yet and the phased implementation schedule in Seattle, for example, make it difficult to draw definitive conclusions. 

Recently, the Associated Press highlighted one apparent success story. 

Ivar’s Seafood Restaurants President Bob Donegan decided to raise prices, tell customers that they don’t need to tip and parcel the added revenue among the hourly staff.

For some of the restaurant’s lesser-paid workers — including bussers and dishwashers — that’s meant as much as 60 percent more. Revenue has soared, supportive customers are leaving additional tips even though they don’t need to, and servers and bartenders are on pace to increase their annual pay by thousands, with wages for a few of the best compensated approaching $80,000 a year.

Yet, as Donegan says, while it’s working “at least in this location,” the strong Seattle economy gets much of the credit. Besides, it’s still early days and the wage hikes are being phased in.

“What we expect to observe is this is not going to be a policy that’s universally good for everybody or bad for everybody,” said Jacob Vigdor, a University of Washington professor who is leading a study of Seattle’s minimum wage law.

The head of the state restaurant association makes an important observation.

“This last jump wasn’t that far out of market, so it didn’t require a lot of reworking of the financials,” says Anthony Anton, president of the Washington Restaurant Association. “Those second and third jumps will be much bigger jumps. Everyone is talking about what to do.”

Even in a thriving metro area, the consequences will be uneven. Now consider the challenges of a national $15 minimum. The Pew Research Center points out the disparate effects.

While Americans generally support higher minimum wages – a Pew Research Center survey in January 2014, for instance, found 73% in favor of a then-current proposal to raise the federal minimum from $7.25 to $10.10 an hour – wide disparities in local living costs, familiar to anyone who’s relocated for a career, create practical complications. For example, a national $15 minimum would yield $17.08 worth of purchasing power in Macon, Georgia, but only $12.26 in New York City, once the differing price levels in the two cities are taken into account.

The national debate gets complicated.

If the goal were to guarantee low-paid workers everywhere in the country the same real purchasing power, that would require hundreds of different minimum wages, scaled to each locality’s cost of living.

As does the state discussion.

But while state-level minimums can address cost-of-living disparities between states, they’re still subject to disparities within individual states, which can be significant. In California, for instance, the priciest metro area (San Jose-Sunnyvale-Santa Clara) is 33.2% more expensive than the least costly (El Centro). The Virginia suburbs of Washington, D.C., are 37.5% more expensive than the Kingsport-Bristol metro area, which straddles the state’s border with Tennessee. And the Chicago metro area is 34.6% more expensive than Danville, Illinois.

Similar cost-of-living variances can be found in our state.

Washington Post columnist Robert J. Samuelson likens the complications to the challenges of the euro. Read his column, but this excerpt makes the critical point.

A central problem of modern democracies is to reconcile politics and economics. Politics has a short-term bias. Political leaders invent the future they want to justify the present they need. Future dangers are discounted because they are usually distant and hypothetical.

Then consider this research from the Manhattan Institute.

By eliminating jobs and/or reducing employment growth, economists have long understood that adoption of a higher minimum wage can harm the very poor who are intended to be helped. Nonetheless, a political drumbeat of proposals—including from the White House—now calls for an increase in the $7.25 minimum wage to levels as high as $15 per hour.

…the authors found that a $15-per-hour minimum wage could mean the loss of 6.6 million jobs. What’s more, despite the fact that there would be some Americans whose wages would be lifted by a higher minimum wage, the effect on the poor would be minimal—of the increase in income for low-wage workers, only 6.7 percent would go to families in poverty.

As Samuelson writes, reconciling politics and economics is the central problem.