By Erin Shannon
On June 2 the Seattle City Council made Seattle the first city in the nation to mandate a $15 minimum wage for all workers. But far from being a victory for workers, a super-high minimum wage is likely to cause more harm than good by destroying businesses and reducing workers’ options.
Effective April 1, 2015, all businesses must pay $10-$11 per hour, with the remainder of the $15 wage phased in over seven years for small businesses (those with less than 500 employees), and three years for large businesses (those with 500 or more employees).
While supporters of the $15 wage say it will have no negative impact on the city’s employment or economy, the reality is it is already killing jobs. Some business owners in Seattle say they are holding off on opening new business or expanding their current business, delaying plans to hire new workers and even moving into neighboring cities. In SeaTac, where some employers have been paying a mandated $15 minimum wage for six months, the benefits workers used to receive have been reduced or eliminated and prices have increased for consumers.
Restaurants, in particular, will be hit hard by Seattle’s new wage. The Puget Sound Business Journal reports that one restaurant owner calls the $15 wage a “mortal threat” and has halted plans to open another location. The CEO of a restaurant chain says his company is also holding off opening new locations in Seattle, and will likely be forced to reduce employees’ health benefits. The company currently offers health care coverage to employees who work at least 25 hours per week, but that may now be increased to 30 hours per week. That company will also likely eliminate tips for servers, and instead automatically charge customers a service charge or gratuity that would be split between servers and other restaurant staff, such as kitchen workers.
And it is not just Seattle workers who are losing potential jobs and reduced benefits. In a twist, the $15 wage is impacting job creation and worker benefits in other cities.
A pizza franchise with 11 locations, six of which are in Seattle, that employs 430 workers has tabled plans to open another location in Lynnwood over concerns the new location and its new jobs would bump the company into the “big business” category. Under the new law, “big businesses” have a shorter phase-in of the high wage; they must begin paying all workers $15 over the course of three years. By
staying under the 500-employee threshold, the company remains a “small business” and has up to seven years to phase in and adjust to the new wage for its six Seattle stores. That is 70-plus jobs workers in the city of Lynnwood just lost.
The company that says it may reduce health benefits in response to the $15 wage would have to do so for all of its workers, even those outside Seattle. Federal law requires companies to offer the same health benefits to all employees. So if the company is forced to increase the threshold to qualify for health benefits in order to offset the new high wage of employees in Seattle, it must increase the benefit threshold for all employees, including those earning a lower minimum wage in other cities.
The CEO of the chain restaurant warns that many small, mom-and-pop businesses will go out of business as a result of the increased labor costs: “Successful downtown restaurants will find a way to make it work, but smaller restaurants will die.”
This sentiment is echoed by the CEO of CKE Restaurants, which owns Carl’s Jr. and Hardee’s. Andy Puzder, author of the book Job Creation, says the push for a higher minimum wage is the one of the greatest threats facing restaurants: “I think you’ll see a lot of restaurants closing. I don’t think that restaurants can operate profitably if they’re paying a $15-an-hour minimum wage.”
Some of Portland’s leaders want to imitate Seattle, but they should think again. Those who support higher minimum wages may not have bad motives, but good motives in support of bad policy still result in driving job creators out of our communities and hurting the very people they want to help.
Erin Shannon is Director of the Center for Small Business at Washington Policy Center in Olympia, Washington. She is a guest contributor at Cascade Policy Institute, Oregon’s free market public policy research organization.