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Seattle Raises the Minimum Wage – Good or Bad for SMBs?

159241343On June 3, 2014, Seattle, Washington’s progressive City Council unanimously passed unprecedented legislation that gradually phases in a minimum wage of $15.00 per hour, making it the highest in the nation.

The federal minimum wage has been stuck at $7.25 since 2009, and attempts to raise it have repeatedly failed in Congress. If fully implemented, Seattle’s minimum wage would be double the national minimum and represent a 61 percent hike from Washington State’s current minimum wage of $9.32 per hour.

The city ordinance will go into effect on April 1, 2015, and be phased in over the next three to seven years. The law gives small businesses, generally defined as those that employed 500 or more employees during the previous calendar year, seven years to reach the $15 per hour mark. Larger businesses will have only three years to reach the $15 minimum wage threshold, but that deadline would be extended to four years for businesses that offer company sponsored health care plans.

Although the new minimum will be gradually ushered in, it has already come under fire from some critics in the business community.

Many economists and business leaders caution that such a large wage hike will put businesses that employ lower wage workers at a competitive disadvantage. They argue that businesses located just outside of Seattle will be able to charge lower prices due to lower labor costs, thereby attracting consumers who would otherwise shop in Seattle.

Critics also maintain that the new minimum wage will result greater unemployment within Seattle. They argue that although individual employees would earn more, higher labor costs incurred by businesses would cause them to employ fewer people, thereby reducing job opportunities for Seattle’s workers.

But many, including the mayor of Seattle and trade unions in the area, support the wage increases and contend that the ordinance will alleviate poverty and better address income inequality.

Although Seattle is known as a prosperous city, the new ordinance was passed in an effort to curb growing income inequality. The U.S. Census shows that 1 in 8 of the city’s residents live in poverty and almost 25 percent of all workers in Seattle earn less than $15 an hour.

A University of Washington study commissioned by the Seattle’s Income Inequality Advisory Committee found that an increase in the minimum wage to $15.00 would increase typical employee’s annual earnings by at least $11,360 if they worked full-time all year. The same study also said that the increase would benefit about 100,000 people and reduce poverty from 13.6 percent to 9.4 percent.

Seattle’s mayor, Ed Murray, wrote in a USA today column that the city had taken steps to, “…address income disparity” and “…lift tens of thousands of families out of poverty and make Seattle more equitable and affordable for all.”

AFL-CIO President Richard Trumka praised the ordinance, stating, “Today’s vote in Seattle will go down in history as a milestone in the struggle to raise wages and ensure fair pay for all workers. It is proof that when working people organize and make their voices heard, we all benefit.”

In the face of Congress’s failure to increase the federal minimum wage, many states and other cities have join Seattle in the push for higher wages.

According to the National Conference of State Legislation, 34 states are now considering raising their minimum wage. Nine states, including Connecticut, Hawaii, Michigan and D.C. already have enacted increases and to date, 22 states have minimum wages above the federal standard.

San Francisco’s minimum wage is $10.74, but the City plans on raising it to $15.00 over 4 years. Polling shows that voters in Oakland will likely vote in favor of a ballot measure to raise the minimum wage to $12.25 and San Diego’s City Council will consider a proposal to raise it to $13.09 an hour.

Despite concerns expressed by critics over the potential negative impact minimum wage hikes could have on small and medium sized businesses, many of the owners of these businesses do not appear to be equally concerned. A Rocket Lawyer survey of small and medium business owners across the country shows that 57 percent think that increasing the minimum wage will not their hurt business.

It remains to be seen whether members of Congress will ever achieve the political will or consensus necessary to address the issue on a national level. But efforts to increase the minimum wage on municipal and state levels may provide us with a clearer picture of the future.

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