Study Endorsing SeaTac’s Proposition 1 Doesn’t Tell the Whole Story

September 26, 2013

Yesterday proponents of Proposition 1, the SeaTac ballot measure to implement a $15 per hour minimum wage, paid sick leave and other labor mandates on some SeaTac businesses, released a study declaring passage of the initiative would inject $54 million in increased household spending throughout the region and create 400 new jobs. 

The study also says employers will be able to easily absorb the increases in the cost of doing business by raising prices on consumers and local governments will benefit by receiving more revenue from the increase in earnings and spending.

But the study is only telling part of the story. 

Eighty-five percent of the most credible research over the past few decades consistently confirms that high mandated minimum wages tend to reduce employment, especially for low-skilled workers.  The higher the mandated minimum wage relative to wages determined by a competitive market, the greater the employment loss.  

And while Proposition 1 will indeed generate a “paycheck boost” for the covered workers, it is important to remember that a decision to increase the minimum wage is not cost-free; someone has to pay for it.  Some workers may have more money to spend and inject into the economy, but that money would come immediately from employers, and ultimately from consumers, and even the workers themselves.

Employers with workers earning the state’s minimum wage of $9.19 per hour would see their labor costs increase 63% with a wage of $15 per hour.  The study admits the actual average wage of the 6,300 workers that would be covered by the new law is already far higher than the state’s minimum wage, at $11.03.  An increase from this current average wage of $11.03 to $15 per hour would be a still-staggering 36% average increase in employers’ cost of doing business.  Keep in mind these wages do not include the tips, service charges and gratuities earned by many of these workers.

Calculating 6,300 workers that would receive an average wage increase of $3.97 per hour, means up to $52 million in increased costs for employers each year.   

So the $54 million the study says would be injected into the local economy is not free, it would be extracted from the 72 businesses the study says will be impacted.  The end result would be an average cost increase of up to $722,500 per covered employer, per year.

The study implies the businesses covered would simply need to increase their prices to absorb the massive wage increase.  The study’s modeling may work out on paper, but it doesn't translate in the real world with Proposition 1.   

Because the initiative unfairly targets some businesses, and not others, raising prices on consumers would not be an option for many of the impacted businesses because many of their competitors would not be covered by the law and thus would not have to increase their prices.  Also, the businesses with airport concession contracts are prohibited by the "street pricing" clause of their contract from raising their prices.  This clause requires airport businesses to set their prices in line with non-airport prices, regardless of the increased costs to do business in the airport.  The owner of a Quiznos sandwich shop located in the airport says the “street pricing” clause means he has no wiggle room to absorb higher costs and he would have to shut his business down if Proposition 1 passes. 

The study further claims the increase in earnings and spending would result in more revenue for local governments. 

But no mention is made of the cost to the City of SeaTac, which would be responsible for monitoring, investigating and enforcing the new law that would only benefit 15-20% of SeaTac residents.  The costs associated with administering the new law would be born solely by the City of SeaTac, and these new duties would likely mean more expenses for the City, while just a fraction of the wage gain would be enjoyed by SeaTac residents.  

So perhaps other surrounding local governments would enjoy increased revenue when their residents who work in SeaTac come home and spend their new wages, because only the businesses and government of SeaTac paying would be paying the tab. 

Crucially, the study fails to even mention the fact that unionized businesses would be essentially exempt from Proposition 1’s labor mandates.  The exemption could encourage non-union businesses to unionize for the sole purpose of taking advantage of the provision allowing union shops to pay less than $15 per hour and no mandated paid sick leave.  So the reality could be much fewer than 6,300 workers earning the higher wages and other benefits when factoring in current unionized businesses that could pay less than the new law mandates and non-union employers that could opt to unionize to avoid paying the higher wage. 

And while the study dismisses any negative impacts a very high minimum wage may have on employers and workers, the fact is whenever government imposes a higher cost of staying in business, in this case through a proposed mandatory $15 per hour wage, employers are forced to raise prices or take other mitigating steps.  It is not reasonable to believe 72 employers will absorb an increase in their cost of doing business of this magnitude.

While the competitive disadvantage inherent in Proposition 1 means raising prices on consumers may not be an option for many of the affected SeaTac businesses, likely mitigating steps include:

  • Laying off employees or reducing employee hours;
  • Reducing employee benefits;
  • Awarding smaller than normal pay increases to workers earning more than the minimum wage;
  • Cancelling expansion plans;
  • Relocating the business to bordering cities such as Burien, Tukwila and Des Moines;
  • Going out of business.

            All these actions, in some form, ultimately harm the worker the very high minimum wage law is supposed to help. 

Comments

Proposition 1 will hurt the very people it is trying to help

Thank you for this thoughtful article. I've been a SeaTac resident for over 45 years. I am very interested in plans which will boost the local economy and help both SeaTac residents and small businesses. Although the intent behind Proposition 1 is noble, I fear it will hurt the very people it is trying to help. As you observe, some businesses will close and others will leave our community. The ones who remain will most likely reduce their workforce in order to absorb the cost increases. This will mean more unemployment (or under employment) and the remaining employees will have to work harder to make up the difference. Pushing workers harder and harder is a trend we have seen at least since the economic downturn. It reduces quality of life and increase healthcare costs. Let's work together to find a solution which benefits all SeaTac residents and revitalizes our city. Proposition 1 cannot do this.