This month kicks off with May Day, an international holiday for workers, and in one US city they got a little bit of good news: The Mayor of Seattle announced a plan to raise the hourly minimum wage to $15.
That hourly wage would effectively be the world’s highest government-set minimum rate in a major city, unless Switzerland adopts a $25 minimum wage in a referendum scheduled for later this month. While other economies have higher minimum wages in exchange-rate terms (Australia’s is roughly $16 an hour), when you take into account spending power, the highest current minimum wage is Luxembourg’s, at the equivalent of $13.35 an hour.
Seattle’s proposed wage hike, produced by a special committee of business, labor and political leaders, is expected to be approved by city lawmakers, and will affect about a sixth of the city’s more than 600,000 residents. It will be instituted gradually, reaching $15 in 2017 for companies with more than 500 employees, and in 2021 for small businesses that offer their employees benefits or tips. After that, further increases will be indexed to inflation.
While Seattle, in the northwestern state of Washington, is only the 22nd-largest American city, the moment is important as the US debates inequality and wages. Yesterday, the Republican party blocked an effort to raise the national minimum wage to $10.10 an hour, as president Barack Obama and his Democratic Party seek to make a pay hike an issue in this fall’s congressional elections.
There’s an economic conundrum here, as well as a political one: while hiking the minimum wage may lead to a reduction of low-skill jobs that can be done more productively with new technology, it also is an extremely effective poverty-reduction tool.
For most American workers, the benefits outweigh the costs. Seattle’s proposed rate, much higher to than those considered on the federal level, will present a useful natural experiment for economists.
Seattle residents have certainly been watching the city’s nearby suburb of SeaTac, which raised its minimum wage to $15 at the end of last year. While that rate has only been in effect for a few months, it does not seem to have led to mass layoffs—even as businesses rely more on salaried employees, and customers have seen some new, small surcharges.