Increasing the Minimum Wage

The off year elections are over. Chris Christie of New Jersey stokes his Presidential
prospects by cruising to a win as Governor of New Jersey. Bill DeBlasio, an unabashed
tax and spend liberal, kicked the stuffing out of his Republican opponent to become
mayor of New York City.

The most interesting election result to me, however, was a referendum in the city of Sea-
tac, Washington. Seatac is in the Seattle metropolitan area. It gets its name from the
Seattle-Tacoma airport (Sea-Tac), which occupies about 25% of the land area of the city.
Seatac has what is described as a working class population. This probably means that
housing is cheap, so households in the bottom half of the income distribution can afford
it. The tradeoff is that every time a jet lands the windows shake.

The good people of Seatac just passed a law mandating a $15 per hour minimum wage,
the highest in the country. Seattle’s current minimum wage is $9.19, while the Federal
minimum wage is $7.75 an hour. So fast food workers at the airport who live in Seatac
just voted themselves a 63% raise.

The activists behind the campaign to increase the minimum wage were tactically brilliant.
The increase is limited to airport related businesses, and restaurants with more then 10
employees. This means most of the increased costs are being shoved onto travelers who
can presumably put the bills on their expense accounts. Since the area around Seatac is
already pretty built up, businesses will have a hard time relocating to just outside the city
limits to avoid the higher wage costs.

This is a classic union organizing tactic: target a large, immobile concentration of capital
assets. If the capital can’t move, then labor can organize to capture a larger percentage of
the economic value created. In the ‘30’s it was steel mills. Now, the capital asset is the
airport.

This will be a large scale experiment on the effects of a big increase in the minimum
wage. We should see a flow of marginally higher skilled workers across the boundary
of the city line, as better workers apply for the higher paying jobs, and businesses eject
less skilled employers in favor of superior applicants. Some of the Seatac residents who
voted for the increase may find themselves on the losing end of that transaction. Be
careful what you wish for.

We should also see a decrease in the number of employees, as businesses work to reduce
their higher labor costs. One of the most interesting results to watch will be the effect of
the higher minimum wage on people who now make between $10 and $20 an hour. If
you are making $12 dollars a hour today, do you accept your $3 raise and go on? I think
it far more likely that you go back to your boss and demand a bigger raise.

I can hear the conversation now: “Why should I work this (fill in the blank) job. I can go
to McDonalds and get the same money.” And because businesses have to compete for
even moderately skilled workers, wage scales will increase from top to bottom. What
I don’t know is whether the push back will be based on a fixed dollar gap or a fixed
percentage gap.

In other words, does the guy who is making $15 an hour today ask for a 63% increase to
$24.45? Or will he settle for a $7 increase up to $22.

One thing is for sure: I'm glad I don't own a business in Seatac