Seattle offers a chilling example for Maine on minimum wage

June 28, 2017 Posted by Jacob Posik - No Comments

There are numerous anecdotal reasons that conservatives oppose raising the minimum wage. Doing so increases labor costs for companies, which has a plethora of negative impacts on workers and employers. New hires can be postponed, hours scaled back and workers let go of, all due in large part to the “quick fix” of increasing the minimum wage.

Many left leaning groups push for minimum wage increases because they believe it will lead to wage growth and even out the income disparity between the dreaded 1-percenters and those at the bottom of the food chain.

So, whose perspective is backed by the numbers?

A study that directly contradicts the left’s talking points on the minimum wage issue is gaining steam among liberal circles and the mainstream media.

The report, released on Monday, was conducted by researchers at the University of Washington in cooperation with the state’s government, giving the Washington researchers up-to-date data never before seen by the public. The study highlights the failures and consequences of Seattle’s recently enacted minimum wage ordinance.

Three years ago, local voters in Seattle enacted an incremental raise in the city’s minimum wage, a scheme similar to what Maine voters approved in November 2016 through Question 4 (although Seattle’s minimum wage laws currently vary depending on the size of a business). The Seattle ordinance increased the city’s minimum wage from $9.47 to $11 per hour in 2015, $13 per hour in 2016, and requires all employers pay their lowest wage workers $15 hourly by 2021.

According to the University of Washington study, as a result of the scheduled minimum wage increases, employers in Seattle cut back on their payrolls by limiting hiring, reducing hours and letting workers go.

The Washington researchers used detailed employment data across all sectors of the city’s economy from 2016 (hours worked and earnings accumulated by low-wage workers) to determine the effects of the first two scheduled minimum wage increases.

When the minimum wage increased to $13 in 2016, Seattle’s low-wage workers saw their hours decrease by 9 percent, leading to a net loss of earnings on average for minimum wage workers. Additionally, despite the wage increase, workers made $125 less per month, or $1,500 less per year, than they did prior to the wage bump in 2016. These trends were also present during the first hike in 2015, but were not as great as those seen using 2016 data.

MHPC came across similar findings in October when we publishedUnintended Consequences: How the minimum wage increase would kill jobs, raise prices and hurt Maine’s most vulnerable.The report found that a minimum wage increase in Maine would remove almost 4,000 jobs from the state economy and disproportionately affect workers with the least amount of job skills.

“When wages rise artificially due to a minimum wage increase, payroll costs on businesses increase without compensating growth in productivity or sales,” the report reads. “With a majority of businesses operating on razor-thin profit margins, [the minimum wage increase] would give many companies no choice but to reduce their operations, lay off workers, transition to automation, or relocate to another state. When minimum wage hikes drive businesses to reduce costs, the first victims are low-wage, low-skill workers.”

Prior to the reinstatement of Maine’s tip credit on Tuesday via LD 673, the threat of automation was particularly damning for Maine’s restaurant industry, whose jobs were to be consumed by IPads and other technological means that significantly reduce labor costs for employers.

This is just one example of the way businesses respond when quick fix policies are adopted without adequate consideration of their implications. What the Washington study teaches us in Maine is that, any way you draw it up, an artificial minimum wage increase at the state or local level has resounding negative impacts on low-wage workers.

Regardless of how high the wage is raised, or in what increments it’s raised to, businesses will do what’s best for their bottom line when politicians decide the living wage instead of free market forces. If that means cutting hours, laying off workers, or replacing people with computers, companies will do what it takes to stay in business.