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Upscale Seattle

Seattle is about to raise its minimum wage to a staggering $15 per hour. The deal is being touted as a cooperation between labor and business. However, that deal was basically extorted by the local government:

With his Income Inequality Committee failing to reach a decision at its final scheduled meeting April 23, and business and labor representatives still at odds over core issues on a deal for a $15 minimum wage, Seattle Mayor Ed Murray gathered the business members of the committee the following day.

Unless they reached an agreement with labor, he told them, he would announce a plan worse for them — and more closely resembling Socialist City Councilmember Kshama Sawant’s pro-worker initiative.

But Murray didn’t announce his own proposal April 24. He stood before a room packed with local and national media and said while there was broad agreement, there were unresolved issues.

One week later, Murray returned to the same conference room in City Hall to announce a historic agreement between business and labor to raise the city’s minimum wage to $15 an hour over five to seven years.

The negotiated deal calls for a three- to seven-year phase-in, with large businesses — those with at least 500 workers — required to reach the $15 wage first.

As you can imagine, the usual suspects are crowing, claiming this will inject half a billion dollars into the local economy (since we all know that wages can be raised with money grown on trees). I find this claim to be ridiculous. All the minimum wage will do — as the minimum wage proponents themselves so often note — is redistribute income. It will not create income on its lonesome.

But even that comes with a price. With this wage hike, Seattle will have a higher minimum wage than any country in the world.

Any plan that makes hiring a worker more expensive than in France should be cause for concern. We know that businesses in high-wage countries are especially eager to replace workers with software. Fast-food restaurants in Europe, for instance, have been some of the earliest adopters of labor saving technologies like digital kiosks where customers can order. Those innovations are already beginning to make headway in the United States. But by passing a $15 minimum, Seattle would risk speeding the process up within its city limits.

Liberal rag the New Republic, while supporting the minimum wage hike, is honest enough to note at least three negative consequences: employers will hire fewer workers; employers will replace employees with computers and employees will be priced outside of the city.

That last point should really be unpacked. Reihan:

It is entirely possible that as Seattle’s new minimum wage proposal takes effect, the poverty rate within the city limits will decrease. What remains to be seen, however, is if the new proposal decreases the poverty rate by raising the market incomes of low-wage workers currently residing in Seattle or if it instead prices some number of less-skilled women and men out of Seattle’s housing market by reducing their market incomes, either by forcing them to exit the city’s formal labor market to seek lower-wage employment in neighboring jurisdictions or by encouraging local employers to reduce work hours.

A question for the class: what businesses pay the minimum wage? The discount and low-price businesses that the working poor and middle class utilize most often, such as fast food restaurants. So what’s going to happen when the minimum wage is raised? The cost of living for Seattle’s lower classes will go up massively. It won’t go up for Seattle’s upper class since their preferred stores are expensive anyway and pay high wages.

The result will be, as Reihan has documented, poor people moving to areas that have lower minimum wages so that they can afford to live, then commuting long ways to areas of higher minimum wage. I don’t see that having to maintain a car and commute a couple of hours every day improves their lifestyle.

But it’s worse:

However, while this is an even trade of money from one group to another, one specific source of money actually shrinks.

The lost money is federal government benefits that low wage workers lose thanks to the increase in the minimum wage. In fact, many of these workers will lose food stamps, some or all of their earned income tax credit, and other means-tested federal benefits. This money is currently spent in the local economy, but after the minimum wage is increased the money will revert to Washington, D.C., to be spent on something else.

As I showed in an earlier column, low wage workers can lose as much as half of any new income to increased taxes and lost benefits. Given the percentage of low wage workers that live in low income households (around 30 percent) and that eligibility for the earned income tax credit extends to about $50,000 for a family of four, the loss to the Seattle area economy is likely on the order of $75-100 million.

We’ve talked about this before: how the federal tax and welfare systems have created massive effective marginal tax rates for those attempting to climb out of poverty. So the notion that this is a straight-up cash dump into the wallets of poor people is incredibly misinformed. At least half and probably more of that money will swirl right out of the bottom of their wallets in the form of reduced government subsidies. And the rest will vanish with increased prices and long commutes. Reducing people’s dependence on government is a good thing, of course. But let’s not pretend they’ll have more money.

Some people are saying that this will be an interesting economic experiment to test the effect of raising the minimum wage. I’m dubious of that. First, people are not economic lab rats and shouldn’t be treated as such. Second, I am sure that the books will be cooked on this experiment. When poor people flee Seattle to live in places they can actually afford, this will give the appearance of a more prosperous city. It’s the same logic by which a city reduces its poverty rate by using imminent domain is used to force poor people to sell their homes to rich people.

Oh, well, could be worse. Down in California, some fools want to raise the minimum wage to $26 an hour.

I wish that was a joke.

11 comments

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  1. Xetrov says:

    Coming soon to a Seattle McDonalds near you! http://www.neowin.net/images/uploaded/mcdts.jpg

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  2. CM says:

    Still, at least Seattle Outcast will be getting a pay rise.
    BOOM!

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  3. Seattle Outcast says:

    Yeah, I go up from low six-figure income to low-mid. Working in aerospace barely affords me three tropical diving vacations a year, with the last half of December off just for the hell of it. Excuse me, gotta go get ready for the night dive here in Roatan, Honduras, and say hello to the fishies…

    On a more serious note, this will, in the long run, benefit nobody. Prices and wages will adjust, the people with no job skills that still don’t have health insurance (but they do have enough weed) will find even fewer jobs available. Additionally, they’ll end up moving even further ways from the “vibrant city core” full of beggars, alcoholics, drug dealers, & no-longer-free bus service, while also looking for additional roommates to pay the rent that went up – again.

    All this will play well in Seattle itself while it drives out the people it is intended to help. The suburbs will point, laugh, and go on being glad they bailed on Seattle with it’s Marxist city clowncil, corrupt & abusive cops, excessive regulation, and exorbitant property taxes.

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  4. Xetrov says:

    Don’t forget your trips to space on Virgin Galactic.

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  5. Ed Kline says:

    Wouldn’t want to hijack the thread, but good God, did any of you seen Joel McHale’s White House Correspondence dinner speech? It was breathtaking.

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  6. Nexus says:

    ” Down in California, some fools want to raise the minimum wage to $26 an hour.”

    There is a twisted part of me that would like to see this happen just so I can watch the left coast implode.

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  7. Seattle Outcast says:

    That’s a good point – maybe now I’ll be afford space flight without busting my 401(k) wide open.

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  8. Hal_10000 says:

    Wouldn’t want to hijack the thread, but good God, did any of you seen Joel McHale’s White House Correspondence dinner speech? It was breathtaking.

    I did not. What did he say that was so amazing?

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  9. Ed Kline says:

    He basically did to the attendees of the correspondence dinner what Ricky Gervais did at the 20011 Golden Globes, but probably meaner.

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  10. Xetrov says:

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  11. hist_ed says:

    My 22 year old daughter works at a local burger place in Seattle and makes about $10/hour. The place pays college tuition for employees, good medical, some retirement, etc.. Her first reaction to the news was “Shit, there go all my benefits.”

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