Normative Narratives

Economic Outlook: A Living Minimum Wage in Seattle

11 Comments

https://normativenarratives.files.wordpress.com/2014/06/91ea7-minimumwagecartoon.jpg

The Seattle City Council has unanimously approved an ordinance Monday to phase in a $15 hourly minimum wage — the highest in the nation.

Drafted by an advisory group of labor, business and nonprofit representatives convened by Mayor Ed Murray, the ordinance phases in wage increases over three to seven years, depending on the size of the business and employee benefits.

The issue has dominated politics in the liberal municipality for months. Murray, who was elected last year, had promised in his campaign to raise the minimum wage to $15 an hour. A newly elected socialist City Council member, Kshama Sawant, had pushed the idea as well.

“This legislation sends a message heard around the world: Seattle wants to stop the race to the bottom in wages and that we deplore the growth in income inequality and the widening gap between the rich and the poor,” Councilmember Tom Rasmussen said.

The increase in minimum wage comes amid a national movement from low-wage workers for higher pay, and a more livable minimum wage.

An individual working full time–$40 hours a week for 52 weeks at $15/hr–would earn a pretax income over $31,000 (or $62,000, for a two minimum wage income family) enough to put most U.S. families over the official poverty line. Furthermore, such an income level would lead to substantial savings on welfare programs, pushing many households into positive net tax brackets (taxes owed minus transfer payments) while unlocking public resources for other deserving causes (investments in human capital, infrastructure, R & D, etc). One would also expect a drop in crime rates (and perhaps the ability to save money throughout the law enforcement and criminal justice systems), as it becomes easier for people to earn a comfortable living legitimately.

A $15 minimum wage is an ambitious plan, as a proponent of economic populism I hope it is a resounding success. People from both sides of the political divide will be paying close attention to Seattle’s socioeconomic indicators–specifically, poverty rates, unemployment rates, crime rates and economic growth rates–in order to support their position on minimum wage laws. It is notable that businesses will have a period of between 3-7 years to phase in higher wages, which should temper any potential adverse economic shocks resulting from this policy.

When it comes to socioeconomic outcomes, there are too many variables to come to definitive conclusions by running experiments; even sophisticated randomized control trials and cohort studies have their limitations. Economics is always context sensitive, and while it may not be fair to extrapolate lessons learned from Seattle across the country, this will inevitably occur. And in these extrapolater’s defense, the only way to see how a living minimum wage works is to test it out on a sufficiently large scale. Seattle has become this testing grounds, and based councilman Rasmussen’s comments, the city welcomes this distinction.

Proponents of this minimum wage hike will likely frame it as the harbinger of a golden age of shared prosperity, while its critics will foretell of rampant unemployment and economic decline; the truth invariably lies somewhere in the middle. For what it’s worth, in the context of the modern American economy, I believe the results will be much closer to the former rather than the latter.

Advertisements

11 thoughts on “Economic Outlook: A Living Minimum Wage in Seattle

  1. We shall see. The Spector of trickle down economics, having been tho urology and unambiguously debunked (krugemans article in the times being a good read for those interested), should prompt us to look for alternate solutions to the inequality trap and coresponding social ills that come with it. I don’t know if a 15usd/hour wage is the solution, but I applaud the good people of Seattle for having the courage to try something new, as clearly what we have been doing to date hasn’t been working.

    Like

    • Right tele, probably only one of many reforms needed to restore some semblance of meritocracy to American society. It is, however, a big step; without such an “experiment”, politicians could continue to squabble about what would happen indefinitely.

      Like

  2. The trick lies in increasing the level of employee education and increasing sophistication of more jobs that should increase the demand for high wages, along with a slew of other improvements in terms of better education….

    Like

    • I agree the education and human capital is surely an important aspect. However, we must ensure those who are less talented are not relegated to a life of poverty, misery, or crime (and enable their children to realize their potential, instead of getting caught in an inter-generational “poverty trap”.

      Furthermore, there is plenty of evidence of the disconnect between employee productivity and wages, particularly for less educated individuals. To me, this points to a widening power asymmetry between workers and owners of capital (perhaps the real minimum wage has fallen due to a perversion of money in politics). To me, this points to the need to not only pursue a human rights based approach to development (help people realize full potential / increase productivity), but also for direct labor market interventions (specifically a higher minimum wage floor).

      Like

      • I would like to point to the study conducted by Sir Ken Robinson which proved that the human inventiveness is actively rooted out by modern education…… It is necessary to build in new career options rather than term people as incompetent which is the label that modern education labels many people as……

        Minimum wage is poor substitute for what we take from these children and replace with bad work conditions and poor prospects……
        One should never judge a fish on its ability to climb a tree….

        Like

      • I fully agree that inequality reducing policies such as minimum wage increases are poor substitutes for investing in education reform and other human rights (physical / mental healthcare for example).

        However, these policies are not meant to be substitutes. Raising the minimum wage does not require government spending, and should therefore be less politically contentious.

        Like

      • It requires expenditure on the behalf of businesses who would rather not pay for it and therein lies the actual problem….. they chose policymakers who use the wrong tools for small problems making them balloon into bigger problems.

        Like

      • Yep, corporations simply aren’t paying their fair share of the costs of a well functioning society. Check out my most recent post I address the issue.

        Corporate Social Responsibility is a nice concept, but it is insufficient to fulfill the obligations the private sector must contribute.

        Like

      • Hence to expand the corporate to the minimum wage earners…… If you can’t win them, join them……

        Like

      • Lots of corporations do employ minimum wage earners, but the minimum wage is not enough.

        If corporations will not pay workers what they both produce and need to survive, the government has to step in with a higher wage floor.

        Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s