Nov. 4 (Bloomberg) -- In Seattle, supporting a $15-an-hour minimum wage could be suicide for politicians. It’s too low.
Ed Murray, who’s running for mayor, vows to phase in that minimum for many jobs if he’s elected tomorrow. Incumbent Mike McGinn has declared he may not necessarily stop at $15.
Much of the U.S. would scoff at mandating a full-time pay equivalent of $31,200 a year, but in the biggest metropolitan area in the Pacific Northwest it’s an idea taken very seriously. A suburb is voting on a proposal to require $15 for airport workers. Backers of the minimum -- more than double the federal $7.25 and 42 percent higher than San Francisco’s $10.55 -- include two of the region’s representatives in the U.S. House of Representatives and business leaders, among them an early investor in Amazon.com Inc.
“I hope they do it, because we’d love to study the results,” said Barry Hirsch, an economics professor at Georgia State University in Atlanta, who documented that some consumer prices went up after the last rise in the federal minimum wage.
More than 120 cities across the country have enacted so-called living wage laws for certain workers, often those receiving municipal contracts, according to the National Employment Law Project. Los Angeles airport employees, for instance, are guaranteed $15.67 an hour. Seattle, which has a population of 630,000, would be the first big city to embrace $15. The Washington state minimum of $9.19 is already the highest in the U.S.
Supporters of efforts in the Seattle area, who are opposed by Alaska Air Group Inc. and other major employers, cite evidence of slowing middle-class job creation and rising income inequality. “This is a discussion that’s going to spread across the nation,” said Murray, 58, a Democrat in the state senate. His proposal would extend the wage first to city workers, then to employees of national fast-food chains and retailers.
The average family earns less today than in 1989 after adjusting for inflation, Census Bureau data show. The top 10 percent of U.S. earners collected more than half the nation’s total income in 2012, the highest proportion since at least 1917, according to research published in September by economist Emmanuel Saez at the University of California at Berkeley.
“The more money workers make, the more opportunities people like me have,” said Nick Hanauer, a Seattle-based venture capitalist who has started 30 companies and was the first non-family investor in online retailer Amazon. “A real economy is just like the game of Monopoly: When one person has all the money, the game is over.”
The mayoral candidates have seized on an issue raised nationally by fast-food workers, who’ve been striking for $15 hourly pay, to distinguish themselves from each other in a traditionally liberal city. Murray first said in July he’d back $15. McGinn, 53, also a Democrat, later told reporters he’d support even more if the city council passed it.
“They may go to $13, or $14 -- they may go to $16,” he said in an Oct. 9 televised debate. “I’ll be there.”
Seattle’s median household income was $65,677 last year, trailing only Washington, D.C., San Francisco, Boston, Baltimore and Minneapolis-St. Paul among the 25 most-populous metropolitan areas, according to Census statistics.
The measure in SeaTac, a suburb of 27,000 south of Seattle where the major employer is Seattle-Tacoma International Airport, would raise the minimum to $15 for 6,300 people who work at the airport, hotels and rental-car agencies.
Passage of the SeaTac measure could generate momentum for similar pay in its larger neighbor, and money has poured in from both sides. Backers, mainly unions, have raised $1.4 million and opponents $660,000 -- a total of about $160 for each of the city’s 12,500 registered voters, according to public filings.
Roger McCracken, managing partner of MasterPark LLC, which operates parking lots near the airport, said the company may have to automate some jobs if the measure passes.
“We’re on a razor-thin margin as it is,” he said.
Alaska Air, based in SeaTac, has contributed $156,000 to defeat the proposal, saying in a statement it would “hinder our ability to remain competitive.” Higher wages will cost jobs, drive businesses away and raise prices, according to opponents.
“It’s not reasonable to assume that employers are going to absorb all of this cost increase,” said Erin Shannon, director of the Center for Small Business at the Washington Policy Center, a Seattle research group that supports “free-market” solutions. “Ultimately, those costs will be passed on to consumers in the form of higher prices.”
There’s evidence for that in economic studies. Hirsch at Georgia State found that 81 fast-food restaurants in Georgia and Alabama boosted prices for “combo meals” -- a sandwich, fries and a drink -- by an average 10.9 percent after the 41 percent increase in the federal minimum wage from 2007 to 2009.
Under one rule of thumb developed by Daniel Aaronson, an economist at the Federal Reserve Bank of Chicago, every 10 percent increase in the minimum wage adds about 1 percent to prices. “One of the cleanest results I’ve ever found in my research career is that prices definitely go up,” Aaronson said. Increases often happened within the first three months after higher wages took effect, he said.
In Seattle, that might mean a 12-ounce brewed coffee at Starbucks Corp.’s store in Pike Place Market would rise to $1.85 from $1.75, assuming every worker there made the minimum wage and prices rose 6 percent as predicted by Aaronson’s model.
At Dick’s Drive-In, the Seattle hamburger joint featured in Sir Mix-a-Lot’s “Posse on Broadway” rap, the Dick’s Deluxe might go to $2.86 from $2.70, using the same assumption.
Restaurateur Tom Douglas, known in Seattle for his signature “Rub with Love” salmon, already has an idea what higher wages will cost. The owner of more than a dozen restaurants and bakeries, he raised the starting wage for cooks to $15 from $12 on Aug. 1, and for dishwashers to $12 from $10. If he passed that on, it might add $1 to each dish, he said. The Neah Bay king salmon at his Etta’s restaurant near the Seattle waterfront now costs $28.50.
Douglas, 55, said he isn’t increasing prices for now, absorbing the $1.3 million a year in extra costs through reduced profits instead. While he doesn’t support a government-mandated minimum wage, he said he raised wages in part because of concern about income inequality.
“The disparity,” he said, “is just too great.”
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