This blog post is the seventh in a series of posts that come from students of our capitalism and democracy undergraduate course. As part of the course, students were asked to write about an issue pertaining to the political economy of distribution. The best blog posts have been selected to provide an opportunity to exceptional young scholars at UCD to contribute to the debate on the future of European and global economic governance, and to promote the insightful scholarship being undertaken at UCD to a wider public audience.
In early June 2014, the Seattle City Council created national headlines in the United States when it passed an ordinance to raise the city’s minimum wage to $15 an hour by 2025, the highest of any city in the country. The yearly increases (which range from $0.50 to $2 annually depending on a couple of factors, most notably size of the employer and whether or not it offers health coverage to its employees) don’t begin to take effect until April 1, 2015, but the ordinance has already received legal challenges, political opposition, and calls for referendum and ballot questions from concerned activists.
Because the ordinance is yet to take effect, it’s obviously too early to determine the economic impact on the city of Seattle and its surrounding suburbs. In the meantime, we can consider the legislative fallout from the ordinance as well as make predictions about the success—or lack thereof—in reducing economic inequality in and around Seattle.
The political trend of American cities, as opposed to state or federal governments, taking the lead in the fight for increasing minimum wages started in 2003, with Santa Fe and San Francisco each voting to increase the minimum wage to a level above state and federal mandates. Each ordinance was met with strong opposition, but each ordinance ended up prevailing, paving the way for cities to become the dominant actors in the fight for higher minimum wages.
There are three main reasons that cities are better suited to take charge on this issue than state or federal governments: the first is that legislation is easier to pass at the city level than the state or federal level. Gridlock at the Congressional level and the wide diversity and political leanings at the state level often make minimum wage laws too tough a task for even the fiercest legislators. Furthermore, because states are often hesitant to pass controversial laws without first testing and proving them to be effective, cities, the populations of which are typically left-of-center, make good testing sites for progressive minimum wage laws.
The second reason is that advocacy groups are starting to become aware of the first reason and focusing primarily on city-wide campaigns, rather than state- or nation-wide. Groups such as Fight for 15 in Chicago and 15 Now in more than 20 cities have come to terms with the political reality of gridlock at the state and federal levels and are concentrating their efforts more locally.
The third reason is that cities have higher costs of living than suburban or rural areas, and are thus more likely to feel pressure from constituents to introduce higher minimum wage laws.
When these three factors are taken under consideration, it makes sense that cities will be the primary battlegrounds in the fight for higher minimum wage laws. Seattle is obviously the preeminent example, but only time will tell whether more cities follow suit and what degree of success they experience. Based on economic history, we can make predictions about the success—or lack thereof—of these movements.
To predict the outcome of Seattle’s move, we need to answer two questions. First, do minimum wages need to increase? And second, is raising the minimum wage to $15 an hour too high?
Thomas Piketty, in his book Capital in the 21st Century, cites a study by David Card and Alan Krueger claiming that the US minimum wage had plunged so low between the 1980s and 2000s that an increase would result in no losses of employment and in some circumstances raise employment (313). In 1969 when the unemployment rate was below 4%, the minimum wage was $1.60 an hour, but when converted to 2013 dollars at $10.10, was the strongest the wage had ever been in terms of purchasing power. From 1980 to 1990 during the Reagan and H.W. Bush administrations, the minimum wage remained at $3.35 while losing purchasing power. A slight increase by Clinton, then being frozen by W. Bush, followed by a few increases by Obama have left 2013 wage’s purchasing power a third below France’s (309).
Given these data, Obama’s proposal to raise the wage 25% from $7.25 to $9 an hour likely won’t result in a loss of employment (313). Since a minimum wage increase wouldn’t negatively impact employment, minimum wages should increase to reflect the loss in purchasing power. As the gap between rich and poor continues to grow, it’s scary to think what its impact will have on our democratic society as super-wealthy people like the Koch brothers are effectively able to purchase American elections.
But is $15 an hour the answer? Piketty cautions against raising the minimum wage indefinitely, as negative effects on employment eventually outweigh the positive effects (313). He argues that to increase the purchasing power of low-paid workers in France, where the minimum wage is similar to Seattle’s current minimum wage of $9.32, it’s better to invest in training to improve skills or reform the tax code than to increase the minimum wage (313). The minimum wage shouldn’t remain frozen, but an increase as substantial as Seattle’s may be inviting the negative effects on employment to take their toll.
Early economic indicators show that 102,000 workers, or 24% of Seattle’s workforce, will receive a raise because of the $15 minimum wage. But other data show that 42% of surveyed employers were very likely to cut employees or shifts as a direct reaction to the increase. 44% said they were very likely to reduce hours to offset costs. 43% said it was very likely they would limit their future expansion in Seattle. One in seven is very likely to close a business in Seattle. So where do we go from here?
Ted Strickland, governor of Ohio from 2007 to 2011, tried to live on minimum wage for a week. His diet suffered, he had to walk three miles in 90 degree heat to a meeting and his job, and he emptied his budget after having to buy medicine less than a week in. The fact of the matter is that $7.25 an hour simply isn’t a living wage, let alone for supporting an entire family. If the increase to $15 an hour proves to be too high and employment is hurt as a result, at least Seattle’s actions have sparked the debate for higher minimum wages around the country.
Nathaniel Cohen is a political science major at the School of Public Affairs at American University in Washington, DC. This blog is part of his coursework during his semester abroad at University College Dublin in fall 2014.
15 Now. (2014). 15 Now Homepage. Available at: http://15now.org/ [Accessed 28 October 2014].
City of Santa Fe. (2014). Santa Fe’s Living Wage Rises to $10.66 an Hour on March 1, 2014. Available at: http://www.santafenm.gov/news/detail/santa_fes_living_wage_rises_to_1066_an_hour_on_march_1_2014 [Accessed 28 October 2014].
City of Seattle. (2014) $15 Minimum Wage. Available at: http://murray.seattle.gov/minimumwage/#sthash.eJPKvHQZ.YoN3FInx.dpbs [Accessed 28 October 2014].
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Piketty, T. (2014) Capital in the 21st Century. Cambridge: The Belknap Press of Harvard University Press.
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Strickland, T. (2014) ‘I Tried to Live on Minimum Wage for a Week’, Politico, 27 July 2014. Available at: http://www.politico.com/magazine/story/2014/07/a-mile-in-shoes-of-the-minimum-wage-worker-109418.html#ixzz3952raHOy [Accessed 28 October 2014]
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