Grand experiment of $15 wage just that
Only one thing is certain: We can’t know the effects of a much higher minimum wage until it has been in place a while.
Special to The Seattle Times
A man once confronted John Maynard Keynes demanding to know why he had altered his position on monetary policy after the Great Depression.
The greatest economist of the 20th century responded, “When the facts change, I change my mind. What do you do, sir?”
Honest people will get the same chance if Seattle’s proposed $15-an-hour minimum wage comes into being and operates for a few years. But whose minds are changed remains to be seen.
Amid all that has been written and speechified about the plan, all the predictions of doom or that it has too many loopholes and doesn’t go far enough, only one thing is certain: We can’t know its effects.
If the proposal is approved by City Council, Seattle will have by far the highest minimum wage in the United States. There’s nothing else with which it compares.
The $15 wage in SeaTac tells little. It is a tiny municipality with many businesses hostage to their location at and near the airport.
Otherwise, the debate among economists about the minimum wage has centered on smaller amounts and increases. Even here, they are sharply divided as to whether it hurts employment or has little or no influence.
Seattle is on a grand experiment. It is a progressive city given to both symbolic gestures and serious liberal policy. One could say that with a median household income well above the national average, the city is prosperous enough to take the chance.
And it is a chance. Seattle is a blue city in a county that ranges from purple to solid red, something shown in the recent defeat of additional funding merely to retain the existing transit system.
Competing cities in the metropolitan area will seek to take advantage of Seattle’s higher labor costs to lure away low-wage employers. You can also count on them to trumpet the $15 wage as proof of Seattle’s “anti-business” atmosphere.
There will be trade-offs. Any economic action also carries with it the risk of unintended consequences.
Thus, as wages are driven higher for low-wage workers, employers will have incentives to automate some tasks, make more use of temporary workers, decrease hours and take steps to increase efficiency with the existing or smaller staff, causing hiring to slow.
It would be nice to think a city ordinance could stick it to The Man. But The Man is accustomed to certain profit margins and will seek to maintain them. He won’t sell a yacht to ensure that fry cooks get a better deal.
Unfortunately, American business does not quantify or value a social rate of return or a moral return on equity.
Only time will illuminate the consequences for smaller businesses, particularly the unique local retailers that make Seattle special, outfits that are already feeling lethal competition from Amazon.com.
Will a higher minimum help businesses by reducing costly turnover and improving morale? Better wages certainly help Costco. But for an entire city, no matter the skill level of the employee? Will they make employment here more inviting or create a rigid, slow-growth labor market? We don’t know.
Will the move sweep up lower wages that are above the state minimum but below $15, floating all boats? Or will we see “wage compression,” where companies have fresh incentives to weed out less productive and experienced workers?
With national unemployment for ages 16 to 19 at a startling 19.1 percent in April, these are not academic questions.
Don’t get me wrong. The crusade for $15 led by Councilwoman Kshama Sawant is an entirely rational reaction to the hollowing out of the middle class, the superrich taking a record amount of national income, major companies mooching off public subsidies for their low-wage workforce and the lower four quintiles of household income being virtually stagnant since the mid-1970s.
And in the big picture, venture capitalist Nick Hanauer is correct that giving workers higher wages creates a “virtuous cycle” where they have more money to spend and better opportunities to rise.
Unfortunately, the causes of the collapse of the middle class are national and international in scope. They have been decades in the making.
Among them: destruction of strong unions, undermining of progressive taxation, deregulation, mergers and the rise of highly concentrated industries and monopolies, ill-advised trade agreements and increasingly sophisticated technology.
The norms that applied during the zenith of the American middle class, when I was getting started, no longer apply. Chief among them is the willingness of top executives to take outlandish compensation even as many drive down wages for their workers.
All this has not only caused the wage crisis, it has killed jobs by the millions. Today, we have a surplus of workers, nearly three seeking every opening.
And most of it has been made possible by the unprecedented amounts of big money in politics, where the oligarchs can buy the policies that suit them, the courts that will back them, and the media that will make enough Americans vote against their economic interests.
So even if Seattle’s test proves itself, even if it emboldens efforts in other cities, it will not be enough. Four decades of ruinous policies will have to be repealed or changed nationally.
So far, the evidence that will happen is disheartening, despite compelling evidence that rising inequality hurts the economy and reasonable redistribution policies don’t affect growth.
But perhaps Seattle can light a path.
You may reach Jon Talton at firstname.lastname@example.org
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest