Minimum wage hikes increase productivity

The Tri-City Herald repeated conventional wisdom in their editorial warning that a higher minimum wage will cost jobs and hurt our state’s business. But experience tells us that this conventional wisdom is reliably wrong. In fact, there is simply no historical data to suggest that raising the minimum wage has even a modest unemployment effect, while there is strong evidence that higher wages boost productivity and economic growth.

According to the U.S. Department of Labor, “a review of 64 studies on minimum wage increases found no discernable effect on employment.” And contrary to popular belief, relatively large minimum wage hikes like those recently passed in Seattle, San Francisco, and Los Angeles are not unprecedented. For example, the federal minimum wage jumped from 40 cents an hour in 1949 to 75 cents in 1950, an 88 percent increase during just one year. Yet despite warnings at the time from the National Association of Manufacturing that the hike would prove “a reckless jolt to the economic system,” unemployment plummeted, from 5.9 percent in 1949 to 2.9 percent in 1953.

Likewise, here in Washington, we raised our minimum wage for tipped workers by 85 percent between 1988 and 1990, despite objections from restaurant owners who warned of mass layoffs. Yet over the following decade restaurant employment growth actually managed to outpace the state as a whole.

Indeed, Washington workers have consistently enjoyed one of the highest minimum wages in the nation since voters indexed it to inflation in 1998, and the loudly threatened flight of jobs to neighboring Idaho ($7.25 an hour, $3.35 tipped) never happened. If anything, our experience suggests that a higher minimum wage is good for both businesses and their employees. Perhaps that explains why the same restaurateurs who reflexively opposed Seattle’s historic $15 minimum wage ordinance continue to open new restaurants at a steady pace?

Operating in one of only seven states with no tip penalty, Seattle restaurants already pay their servers a minimum of $13 an hour plus tips — more than six times higher than the disgraceful $2.13 an hour federal minimum wage for tipped workers, and 137 percent and more than a third higher than the rest of the state. Yet according to data compiled by Bloomberg, among large metropolitan areas, Seattle trails only high minimum wage San Francisco in the number of restaurants per capita.

How is this possible? One obvious answer is that higher paid workers are more productive, loyal, and reliable. According to a new study from the Cornell University Center for Hospitality Research, modest minimum wage increases like the one Raise Up Washington has proposed have no discernible effect on restaurant employment.

Even when menu prices rise in response, restaurants see no decrease in demand or profitability. The researchers find strong evidence that higher wages both reduce turnover and boost worker productivity. Their conclusion: “the evidence suggests that the restaurant industry should accept reasonable, modest increases in the minimum wage.”

But there’s another economic truth at play in Seattle and San Francisco: When workers have more money, businesses have more customers; and when businesses have more customers, they hire more workers. A high-wage economy is simply good for business—even restaurants.

Yes, the editorial board was right that we have seen a “push back” from employers in SeaTac and Seattle. But what we haven’t seen is lost jobs. In fact, if higher local wages are putting Alaska Airlines at “a competitive disadvantage with prime rival Delta Airlines,” you wouldn’t know it from Delta’s recent expansion in Sea-Tac, where it recently added three flights a day to Tri-Cities Airport in Pasco.

That’s how capitalism works.

This story was originally published February 13, 2016 at 11:02 PM with the headline "Minimum wage hikes increase productivity."