In Praise (Kinda, Sorta, Not Really) of Seattle’s $15 Minimum Wage

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The Seattle City Council’s recent vote to raise the city’s minimum wage from $9.32 to $15 an hour has unleashed the usual cavalcade of predictable responses from those who are predictable enough to respond. The Left herald the hike as a victory for low-skilled, low-pay workers since they will now have a shot at joining the ranks of the Middle Class (For some reason, The Left only want Americans to join the Middle Class, never the Upper Class. I wonder why that is…). Other people who have taken an economics class or two, or who possess a modicum of common sense, warn that increasing the minimum wage will lead to price inflation, job losses, and other unintended consequences.

One of the non-Left predictors is Forbes contributor Tim Worstall. He wrote an opinion piece titled, “We Can Predict the Effects of Seattle’s $15 An Hour Minimum Wage.” The essay’s opening has one of the best ideas I’ve read so far about the Great American Minimum Wage Debate. He writes, “It’s not difficult to outline some of the effect that this new $15 an hour minimum wage in Seattle is going to have. And I, for one, would rather hope that people are starting to study that labour market right now, so we can get a good idea of what it is like before that wage comes in. And then we can go back when it’s fully implemented and see what the effects have been.” If only! I would have supported the Seattle City Council’s decision to raise the minimum wage to such a non-minimum number like $15 if the ordinance had included a provision to actually study the effects of raising the city’s minimum wage, and to repeal the ordinance if said effects prove to be detrimental to its citizens.

J/K. I am not so delusional as to blithely think that should the minimum wage hike not pan out, progressives such as those who comprise the Seattle City Council, or any progressive, will voluntarily go through a period of self-examination and possibly hypothesize they are contributing to and perpetuating the problem, rather than bestowing solutions. Progressives believe in the justness of their cause, and that is enough to either ensure they are successful, or that they will never have to bear the mark of blame for their failure, since it will be the fault of others, or the “system” or some other ethereal reason, like “hope losing out to cynicism.” (If that’s a phrase I just coined, any progressives reading this are welcome to use it, free of charge.)

Worstall writes:

“For my prediction is that the effects are not going to be good and it would be rather useful in future to have the evidence that large rises in the minimum wage really aren’t a good thing…You know, before someone suggests it should be applied to the whole country? As, in fact, people already are?” Yes, like SCC member Sally J. Clark! In fact, her opinion piece published by cnn.com is titled, “Why Seattle Raised Our Minimum Wage, and Why America Should Too.”

Worstall continues:

The best result we have from the academic literature is that a minimum wage in the 40-45% region of the median wage has little to no effect on unemployment…The same research tells us that once we get to 45-50% of the median wage then we do start to see significant unemployment effects…This $15 an hour in Seattle will be around 60% of the local median wage. We would therefore expect to see reasonably large unemployment effects.

Clark, of course, does not deign to address the possibility the minimum wage could affect employment levels, only that great things will occur as a result of the hike. Instead, she clutches at her pearls and cites Seattle’s high cost of living, the scourge of income inequality, and, of course, helping workers enter the Middle Class as reasons for raising the minimum wage. She writes:

After the job losses of the Great Recession, the rise of the 1 percent, the headlines showing CEO pay at 257 times average worker pay, the evidence that race and gender exacerbate income inequality, doubts that this generation of kids will be better off than their parents, crushing student debt burdens, and relentless foreclosures, many are left wondering if the middle class was a fleeting 20th-century phenomenon heading toward extinction.

Clark doesn’t state if the progressive safety nets and social programs enacted over the past century have benefited those in need, or if they’ve helped to perpetuate the problems that burden the downtrodden. What she does do is display a staggering level of economic illiteracy. It would be amusing, but also too easy to discredit Clark’s more asinine comments…so let’s do exactly that.

About American capitalism, she writes, “You could argue that some level of income inequality is required for our system.” Sure, you could, but so far I’ve not come across any definitions or analysis of private enterprise that asserts income inequality is a prerequisite for the existence and operation of privately owned means of production.

Here’s another good one: “A higher minimum wage might mean presenting a truer cost to consumers. If you think it’s odd that a burger, fries and a shake can cost just $4, that’s because that price is subsidized in part by the low wages paid to the people who cook, serve and clean up after your meal.” It seems as though she’s advocating raising consumer prices for the sake of…honesty? Lord knows I’m no Thomas Sowell, but I’m pretty sure she’s not using “subsidized” properly. And no, I don’t think it is “odd” fast food is cheap; I’m thankful for its low price, and I would buy far fewer Happy Meals if its price was to skyrocket.

I think my favorite one is, “A higher minimum wage means being able to buy your child a pair of shoes.” Yes, it’s about time Seattle does something about its shoeless street urchin problem. It’s positively Dickensian! Here’s hoping the price of shoes in Seattle doesn’t rise any time soon, or ever, as an unintended consequence of the minimum wage hike.

Clark writes $15 an hour is “close to what experts say it costs in our area for a full-time worker to meet basic needs (housing, food, utilities, transportation, etc.).” Finally, she stumbles across the real problem: Seattle’s cost of living is too high for low-wage earners. Yet, there is no follow up. Wouldn’t it make sense for Seattle’s town elders to try to find ways to bring the cost of living down as a way to help its poorer residents? But, like with high costs of education and healthcare, the policy prescriptions from progressives amount to “Make people be able to afford stuff that’s more expensive than it should be!”

Clark believes low-wage earners need higher paychecks because, “We just can’t expect the people who prepare our food, care for our elders and children, and clean our homes and offices to earn wages that keep them trapped in poverty.” By God, she’s right! From now on, I’m going to stop secretly hoping the janitor where I work stays trapped in poverty. It’s gone on long enough, my wanting him to be poor. All seriousness aside, the above quote indicates Clark is unaware of the fluidity of labor markets, especially those in the service industries, as though once you have a job, you keep it forever. Yet, a few graphs later, she writes, “And, no, minimum wage earners aren’t going to suddenly become complacent and sit for years in minimum wage jobs…” (How does she know this? Clairvoyance, I suppose. But, is it not possible that artificially raising the wage floor may undermine the urgency that would compel low-skilled workers towards self-improvement?) “…Minimum wage workers have dreams of advancement and accomplishment just like anyone else.” I believe Clark’s brilliant insight is true, and that low-skilled workers already take pains to concretize their dreams without needing government to prod them in the direction they already want to go.

Despite my overwhelming fears of death, snakes, and the possibility of a future in which humans are hunted down and exterminated by sentient and vengeful apes or self-aware robots, or some combination thereof, I’m a pretty optimistic person. My optimism becomes most apparent as a stark contrast to the grandiose schemes of progressives, since their worldview is informed by pessimism about what some demographics and classes of the population are capable of achieving. The progressive makes himself indispensible to those who are not well off by convincing him he is without agency to lift himself out of the dregs of society. The minimum wage debate calls to my mind Affirmative Action. The motivating sentiment of progressives is, “Some people can not survive, strive or thrive without me interfering in their lives. I am needed to prevent individuals from entering into contracts comprised of terms that I do not agree with. I must also change the rubrics that dictate the rules of college admissions. Objectivity has no place in a merit-based system!”

I don’t think my optimism that people can lift themselves up by their boot straps is such a pipe dream, even in Seattle, despite fellas like Tim Worstall predicting a significant rise in low-skilled unemployment. Yes, Seattle has just approved a 60% jump in its minimum wage, but depending on the size and type of companies doing business there, the wage increase will be phased in over the course of three to seven years. Now, seven years is a long time. A high school graduate could spend that time graduating from college and building a professional resume. In other words, in seven years time, he could go from the existing minimum wage to the $15 an hour level, and beyond. I don’t assume the status of a minimum wage worker will remain static; they can, and they should, take steps of their own accord to make themselves more productive and valuable to business owners, or become business owners themselves.

One last bit from Worstall:

We would also expect to see unemployment among high school graduates rise very much more than the rate in general. For this minimum applies only inside the City of Seattle: it doesn’t apply to the surrounding counties or suburbs that aren’t part of that political jurisdiction. Imagine that you were a college graduate having to do some basic work to make ends meet while you were waiting for that career opening. If you’re going to get $7.25 outside Seattle and $15 inside it you’d probably be willing to make the trip each day to earn that extra. Of course, as a high school graduate you would too. But now think of yourself as the employer. You’ve got the choice of a college graduate or a high school graduate, both willing to do the same job at the same price. Who are you going to hire? Logically, the higher grade worker, that college grad.

So we would expect minimum wage jobs within Seattle to be colonised by those college grads at the expense of those high school ones. We would therefore expect to see a much larger rise in the unemployment rate of those high school grads as against the general unemployment rate. In fact, we’d expect to see this happening so strongly that we’d take the empirical evidence of that widening unemployment gap to be evidence that it was this minimum wage rise causing it.

OK, so then what happens to workers with only a high school diploma or GED boast on their resumes? Worstall offers no prediction for what they would do, so allow me to make some: they will go to college or move away from Seattle. The city had experienced a hemorrhaging population level in the 1970s and 80s. Will Seattle experience a net negative population growth and a nose-diving economy over the several years it will take to raise its minimum wage? Probably not. But individuals and families take their own situations into account; they do not find solace in macroeconomic trends.

The minimum wage hike idea functions solely as a matter of emotional appeal…but perhaps we who follow “the dismal science” can imbue within the cold calculations of economics some emotion of our own. I wish there was a way to document, over the next decade or so, the effects of Seattle’s minimum wage hike at an individual or family level without further eroding their right to privacy. If the hardships workers endure due to the minimum wage hike could be highlighted and used to convince the populace to vote for politicians who espouse free market principles, then this sad exercise may not be for naught…but I’m not holding my breath.

About Author

Dillon Eliassen is the tallest Libertarian/Objectivist you’ll ever meet. He doesn’t play basketball. He doesn’t care if you do, just don’t coerce him into any one-on-one. He’s a grad student studying American literature, almost done with his first novel, and works in the private sector.

  • Give me liberty

    I see the validity of your argument but raise this question: if our market wasn’t built to make the CEO a filthy rich douche bag by inflating the costs of his product and cutting back on the number of his employees, would we still be having this argument? The entire structure of our american economic principles is based on the opportunity to become rich, not middle class, let’s face it, every entrepreneur has the goal of becoming wealthy. When you build an empire like McDonalds, it would take an act of government and the infringement of our rights to limit the financial separation of boss and employee, which I whole heatedly believe in. You have to start at the bottom to make it to the top. Since our principles weren’t based on limiting wealth, we will always see a separation of classes, add on to it the enormous costs of education and things will never change.

    • Philip

      Give me liberty, there is a fine balance between maximizing profits and minimizing costs. Thanks to the government’s willingness to continue propping up the poor through taxes, the CEO has a disincentive to provide high wages since it is a poor practice under our TAX system.

      Under current welfare/income support guidelines, a single woman making 29K/year earns the same as a single woman earning 69K/year. So, if she’s earning $15/hr (~29K/yr) and is offered overtime, and earns an extra $1,000 (44 hours of overtime @ 15/hr over a year), she loses over $5,000 in benefits. Now, suppose Wal-Mart offers her a raise to $16/hr, she would be stupid to take that job because while her pre-tax wages would increase from 28.8K to 30.7K per year, her after-tax/after-benefit wages would decrease from 57K to about 50K. Hooray for losing 7K/year thanks to a raise.

      http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/11-2/welfare%20cliff.jpg

      So, the CEO has an incentive to get the best employees by offering a wage that falls within the 20K-30K range as the employees all effectively earn nearly the same wages along that curve. (Ranging from 54K-57K along that curve). If that CEO offers 31K/year, he will recruit the stupider employees that don’t realize that they’re getting paid less, which will be the employees that don’t provide as much productivity, and those employees that aren’t worth the wages that he’s offering to pay out of pocket. Even further, the CEO has no incentive to pay at the upper end of that curve because for every $1,000 along the curve, his employee only receives 1/5th of that while the employer sees higher costs at a rate of ~108% (so, employer pays $1,080 more for $200 more labor effort? — part of the argument is that a higher paid employee works harder, so we’ll assume that their harder work is equivalent to the amount of extra money they see). That’s a poor investment, makes more sense to spend that on better systems or another part-time employee where $15K buys you $40k worth of labor.

      This isn’t market failure. This is failure due to poorly thought out government intervention into the labor market.

  • nicole

    If the existence of capitalism or millionaire CEOs are the reason that people are struggling now–those of us who work at small local businesses or co-op businesses would be living richly. The truth is that we at these small businesses (even co-op businesses) are not living any better/bringing in more money than those who work at corporations. So it is obviously something else. (taxation, regulations, intellectual property, restrictions on opening new businesses, owning availible land freely, and using natural resources is my deduction)

  • Lugmar

    Our economic system is based on cheap/slave labor. It always has been. Yes, in theory, one can “progress” to the next economic tier but the reality is that very few actually do, not for lack of trying but there simply is no room at the top of a pyramid, or, pyramid scheme, which is what we are living in. Like all pyramid schemes, they are completely dependent on the belief that everyone will get rich, which is, of course, impossible.

    So really, raising a minimum wage in the existing system will not likely improve much. The true shame of a minimum wage is the fact that one is even needed. It’s like telling someone, “If I could pay you less, I would but it’s against the law.”

    If we are to survive the fast approaching exhaustion of resources, we’re going to have to change the economic model before it changes for us all by itself.

  • Epicdelusion

    There should be no minimum wage. If someone is willingly, by their own free volition, to trade their labor for a lower wage or even nothing at all, then by all means it should be so…that is a voluntary agreement. It is nobody’s business after that. Price controls are antithetical to a free society, even on wages.