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Seattle’s minimum-wage gains may prove minimal Add to ...

For decades, Seattle has been one of the most progressive cities in the United States. Everything from its music to its politics have often run counter to the grain of American life. Most recently, the city was at the epicentre of the movement to legalize marijuana in the state of Washington.

Now, Seattle’s civic leadership wants to address what has been deemed the country’s single biggest social issue: income inequality. And its first move to arrest the perceived hollowing-out of the U.S. middle class has caught everyone’s attention.

This week, Seattle council voted to increase the minimum wage to $15, a 61-per-cent raise from the state’s current $9.32 rate. The move was cheered by poverty activists, union leaders and fast-food workers everywhere. Small business owners, meantime, are predicting that many companies will either close down or relocate. Even though the policy will be phased in over a few years, most everyone agrees it will lead to layoffs.

There is no doubt that all of America will be monitoring Seattle’s grand experiment with intense interest. It’s arguably the first, real tangible result of the short-lived Occupy movement that sprang up two years ago but eventually collapsed under its own anarchistic structure. In its time, however, it drew attention to an issue that hasn’t gone away. And it gave voice to a new generation of advocates, some of whom are assuming positions of power in U.S. cities.

The woman being credited with getting the $15 minimum wage hike passed is Kshama Sawant, a hardened socialist who successfully ran for Seattle council last year on a promise to help lift the poor and disadvantaged out of poverty. Seattle’s new mayor, Ed Murray, was also elected on a pledge to fight economic disparity. New York’s Bill de Blasio won his city’s mayoralty on a similar-sounding platform. Even President Barack Obama has made it an issue. He’s trying to raise the national minimum wage to $10.10 from $7.25 and, not surprisingly, is meeting intense resistance in Congress.

As wonderfully utopian as Seattle’s minimum wage move is, it has clear limitations as a public-policy instrument designed to address poverty. At least, that’s the view of scads of economists, many of whom believe the measure could instead end up damaging Seattle’s economy while having little effect on the financial bottom line of those getting the raises.

“Any plan that makes hiring a worker more expensive than in France should be cause for concern,” said Jordan Weissmann, writing for Slate magazine.

Under the Seattle blueprint, by 2025, all workers in the city will be making a minimum of $18.13 an hour after cost-of-living adjustments are factored in – nearly double the current rate. That would be far higher than the current legislated minimum wage of any of the members of the Organization for Economic Co-operation and Development.

There doesn’t seem to be any academic research on the impact of a minimum-wage increase this precipitous. Studies examining smaller jumps have generally found that there has been no noticeable impact on employment. (Neither has it had a discernible positive impact on the broader economy.)

The federal U.S. Congressional Budget Office has estimated that raising the federal minimum wage to $10.10 would lift just 900,000 of the 45 million Americans currently living in poverty out of it. It has also predicted that that kind of raise would boost the earnings of 16.5 million people, but cost more than 500,000 jobs.

Others suggest that the optimistic forecasts made by Seattle politicians overlook some key considerations. For those living at or below the poverty line, for instance, income gains will trigger significant losses in federal benefits and move some into higher tax brackets.

There are also worries that employers will pass these wage costs on to customers, which could fuel inflation and dilute the real earnings gain that the minimum wage increase creates.

Seattle’s civic leaders should be applauded for attempting to address a deepening societal question. At the end of the day, however, you can increase the minimum wage all you want, but you can’t wish away the basic laws of economics.

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Follow on Twitter: @garymasonglobe


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