In Our View: Minimum Wage Experiment

Seattle’s move toward a vast increase in the minimum wage is one that will have a sweeping impact on the Puget Sound region, the state and likely the nation.

Seattle Mayor Ed Murray last week announced an agreement that will raise the minimum wage within the city limits to $15 an hour over the next four to seven years (Washington’s statewide minimum wage is $9.32, the highest in the country). There are different timetables for small vs. large companies, and for employers who provide health care coverage vs. those who do not, but the gist is that low-wage employees within the region’s largest city are about to serve as an economic petri dish.

“Hopefully, on this day, we will take the first steps toward growing the middle class,” Murray said. “This is a historic moment for Seattle. It’s setting the standard for what a progressive city can do.”

Or it could be harming the economy. The subject of the minimum wage is guaranteed to generate strident opinions on both sides of the issue. On one hand, there is the theory that raising wages increases the buying power of workers and allows them to purchase more goods and services, thereby boosting other businesses. Henry Ford famously paid good wages to his employees, theorizing that the people who built his cars should be able to afford to buy one.

On the other hand, there is the reality that artificially forcing higher wages will harm workers. If a business is compelled to raise wages, it has four options: Pass the added costs along to consumers through higher prices, which will reduce sales; reduce the number of employees in order to keep labor costs relatively static; reduce profits, which shortens the capital for reinvesting in the company; or move operations to a city with a lower minimum wage. Actually, in the case of small, developing companies, there is a fifth option — close up shop.

Seattle City Councilmember Nick Licata, who sat on the mayor’s Income Inequality Advisory Committee, said: “This is an awesome victory for the 100,000 workers earning less than $15 an hour in Seattle. They will see their lives dramatically improved.” That is, if they still have a job. As The Columbian has written editorially in the past: “If forced, through legislation rather than market forces, to increase pay for unskilled workers, business owners are going to reduce their number of unskilled workers. They won’t reduce pay for their valuable employees; they won’t reduce profits; they won’t cut other expenses. No, they’ll eliminate the positions that are the most expendable.”

Mayor Murray spoke of rebuilding the middle class. That is a worthy and necessary goal in these economic times, but his methodology falls flat. To truly foment sustained growth in the middle class, the emphasis must be on helping workers to develop the kind of skills that employers are seeking. Too much of the current debate over the minimum wage focuses on the artificial wage floor at the expense of the real issue — if you want to improve your wages, improve your skills so an employer will hire you for more than minimum wage.

That said, we hope that Seattle’s gutsy experiment with the minimum wage proves successful. As the largest city in the Northwest, it is the engine in the economic train of the entire region; as a major metropolitan area, its minimum wage will be closely watched — and likely copied — by other major cities. Last year, voters in SeaTac approved a $15-an-hour minimum for some workers, a quaint little experiment in macroeconomics. But when Seattle follows suit, the impact could be profound.