Spotlight Exclusives

Seattle Becomes Testing Ground in Minimum Wage Debates

Chris Nishiwaki Chris Nishiwaki, posted on

Conflicting studies by economists on the effect of the new minimum wage in Seattle have heightened an already contentious debate about how Seattle businesses operate. But most businesses in Seattle, dedicated to improving income equality in the city, remain committed to working with the new law and are turning to creative means to adjust to the new labor cost structure.

The Fight for 15 movement has won victories in a number of large cities, including Los Angeles, New York, San Francisco, and Seattle. But Seattle became the epicenter for the national debate earlier this year when two studies came to diametrically different conclusions about the impact of the city’s 2014 decision to gradually raise its minimum wage to $15 by 2018.

A University of Washington study argued that the ordinance is backfiring,  negatively impacting the low-wage workers it was designed to lift up. But a separate study by University of California, Berkeley economists contends that the impact has been positive.

A major source of disagreement: the impact of the law on hours worked, and, ultimately net income for low-wage workers. The Berkeley study found no evidence of job loss ; the UW report says hours worked have been chopped and income reduced.

According to the UW study, the average low-wage employee in Seattle makes $1,897 a month. While the hourly rate has risen for low-wage workers, take home pay has been cut by an average of $125 per month, the study found. For low-wage workers making $1,897 a month, $125 a month is a significant amount, in some cases, the difference between making rent or not.

“Their findings are not credible and drawing inferences from the report is unwarranted,” UC Berkeley economist Michael Reich said of the UW study. “ He said the UW’s study’s exclusion of multi-site businesses, for example franchises and retail chains, skewed the research data.

“This major exclusion raises a big red caution flag about the representativeness of their sample and therefore about the interpretation of their findings,” Reich said in a report to the Seattle mayor.

UW economist Jacob Vigdor defended his methodology. Vigdor said his team is granted special access to individual and detailed data from Washington State. The Berkeley study relies on public data, which Vigdor describes as “summaries” of the UW study’s data.

“When we perform the exact same analysis as the Berkeley team, we match their results, which is inconsistent with the notion that our methods create bias,” Vigdor said.

Seattle restaurateur Rich Fox, who owns Rhein Haus on Capitol Hill and in Tacoma, McCloud’s Scottish Pub, McCloud’s Fish & Chips, Poquitos, Poquitos at Safeco Field, and the soon to open Poquitos in Bothell, has a more cynical take, believing city officials turned to the Berkeley economists after preliminary indications that the UW study was less favorable to their agenda.

Fox, reflecting the view of many business owners, feels the city was too quick to reject the more critical findings of the UW study. “My belief was that if they were going to look at the response, good or bad, let’s acknowledge that,” Fox said. “It’s disconcerting when our government see things that may not exactly be what they thought it was going to be then they turn to someone else who is going to tell them what they want to hear. The city’s reaction was to hire another researcher.”

But as 2017 comes to an end, it’s clear that the majority of Seattle business owners, including Fox, are committed to adapting to the new minimum wage and are not looking to overturn it. Instead, they are adjusting budgets including personnel adjustments such as the reduction in hours noted in the UW study. They are also adjusting other expenses.

“I think, for us, we’ve always looked at the horizon. What are we going to do when tipped employees’ wages go up from $12 to $15,” Fox said. “When you look at that jump, that is a gamechanger. That is an enormous amount of money. We have to rethink how we do business. We can’t just eat the cost or we can’t raise prices.”

Fox said he has pushed back on prices from wholesalers and suppliers to adjust his costs. He has also adjusted operational costs such as bank fees and insurance. He has also altered the bonus structure he pays his staff.

“Before the new minimum wage, we were able to give incremental pay raises based on performances,” Fox said. “We had the bandwidth to give those small bumps beyond the wage scale. We’ve lost that ability now with the increases in the minimum wage.”

Fox is also analyzing competitors such as Tom Douglas Restaurants, Ethan Stowell Restaurants, and Ivar’s.

Ivar’s eliminated tipping in 2015, raising prices to compensate for the lost wages and distributing the revenue among front of house and back of the house staff. The experiment lasted about two years as Ivar’s went back to tipping earlier this year as sales lagged, attributed to the perceived price increase.

“Some people think, just raise your prices,” Fox explains. “They don’t understand price sensitivity. People have price sensitivity. No matter how noble the reason, when they are used to paying for something that is $10 and all of a sudden it goes up to $12 to $13, they may not order it or not go out at all.”

Andrew Friedman, who sold the Liberty Bar in October, said multi-location operators such as Fox, Douglas and Stowell, have more flexibility in adjusting to raising labor costs.

“A multiple operator has so many advantages,” Friedman said. They can purchase in bulk. They have one accountant for all of their restaurants. They have one manager for multiple operators. They can spread some of their costs among their multiple locations.”

The City of Seattle started gradually implementing an increase up to a $15 minimum wage starting in April 2015. The law requires large employers (501 employees or more) to raise their minimum wage to $15 an hour by 2018. Small employers (500 employees or less) are required to meet the $15 an hour threshold by 2021. After the minimum wage reaches $15 an hour, the hourly pay rate will be adjusted for inflation each year on January 1.

The state of Washington already required the highest minimum wage in the country. Vigdor argues that other states with lower existing minimum wages could have more trouble adjusting to the $15 minimum wage. Over 20 states currently do not have a minimum wage in excess of the $7.25 federal minimum. In such cases that would mean more than doubling the minimum wage, potentially making the adjustments to a much higher pay rate exceedingly difficult.

The Seattle debate, fueled by the conflicting studies, mirrors a growing national conversation about the minimum wage that likely will become even more heated as the 2018 and 2020 election cycles approach. For supporters of an increased minimum wage, the case is simple: “If someone is working a 40-hour week job, they should be able to live, have a roof over their head, have health insurance, and be able to eat,” said Seattle political activist and restauranteur Dave Meinert.

Others, like Moody’s Analytics’ Adam Ozimek, contend the impact of a rising minimum wage in the manufacturing sector could spur entire operations to move out of the country taking millions of jobs out of the United States.

“As the minimum wage rises it affects other sectors. For manufacturing, at least, the effect is likely to be greater,” Ozimek argues. “If wages become too high in one place, it’s easier for a manufacturer than for, say, a restaurant, to relocate operations.

In the meantime, activists, business owners, and employees continue to grapple with the real world impacts of a policy change most hope can ultimately be successful.

“Many people supported the $15 minimum wage because they were hoping to solve income inequality,” said Meinert, who owns The Five Spot, Lost Lake Café, Comet Tavern, and Big Mario’s Pizza, all in Seattle. “I don’t think we are any closer to solving income inequality. In some worker’s lives, it has raised their income. In some worker’s lives, it has decreased their income. If $15 an hour works, I am all for it. if it doesn’t work, I want to look for new solutions.”

Chris Nishiwaki is a Seattle-based journalist and non-profit consultant. He has written for over 25 years appearing in The Seattle Times, the Seattle Post-Intelligencer, The Kansas City Star, Seattle Magazine, Seattle Metropolitan Magazine, Wine & Spirits Magazine and Gourmet. He has also served on over 50 non-profit boards supporting social justice, education, healthcare, children, families, and the arts.

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