Earlier this month, Seattle became the first major city in the United States to approve a $15 minimum wage. With the ink from Mayor Ed Murray’s signature barely dry on the new ordinance, activists and legislators in other major cities—including New York, Chicago, and San Francisco– have announced their interest in copying or exceeding Seattle’s benchmark.
But a new survey suggests that these eager city legislators are putting good intentions ahead of the evidence. Based on the responses of 265 Seattle businesses, our survey found that 42 percent are “very likely” to cut staffing levels in response to the new law, and 44 percent are “very likely” to reduce employee hours. One in seven businesses reported closing their doors is “very likely.”
Economists have long understood that a higher minimum wage tends to reduce employment among the least-skilled and least-experienced individuals. At the $15 level, this dynamic is magnified considerably: Even left-leaning columnists and economists who generally support a higher minimum wage have expressed caution about the $15 figure.
EPI contracted with a survey research firm that contacted Seattle businesses representing roughly 50 different specific industries likely to be affected by the new $15 ordinance. Some of the businesses contacted weren’t affected by the law, and others opted not to participate in the survey. While not representative of the city as a whole, our results still represent the views and anticipated reactions of 265 businesses in the city that will be affected by the $15 ordinance. As the table below describes, nearly 90 percent of the respondents had fewer than 50 employees, and about half of the respondents had fewer than 10 employees.
|Which category best describes the size of your workforce at all locations (both inside and outside of Seattle)?||1. Fewer than 10 employees||129||48.68%|
|2. 10-49 employees||105||39.62%|
|3. 50-99 employees||14||5.28%|
|4. 100-499 employees||13||4.91%|
|5. 500-999 employees||3||1.13%|
|6. 1,000 or more employees||1||.38%|
Almost all of the respondents indicated that a $15 minimum wage would cause an increase in their operating costs, with 70 percent indicating that the new law would spur a big cost increase. At low-margin service industry businesses in particular, these new costs can’t simply be absorbed. Instead, businesses will either have to raise prices or lower costs elsewhere.
|Would you say that this $15 minimum wage will cause a big increase in your labor costs, a small increase, or no increase?||1. Big Increase||184||69.43%|
|2. Small Increase||65||24.53%|
|3. No Increase||9||3.40%|
The survey results suggest that price increases are one strategy that Seattle businesses are planning to pursue: Nearly two-thirds of the surveyed businesses were “very likely” to increase prices.
|In response to the higher minimum wage, how likely is it that you’ll raise prices at locations in Seattle?||1. Very Likely||166||62.64%|
|2. Somewhat Likely||43||16.23%|
But price increases aren’t a silver bullet. After all, if businesses could increase prices without reducing customer sales, they would have done so already.
To offset the new costs without raising prices, nearly 44 percent of businesses surveyed reported that they are “very likely” to reduce employee hours, and 42 percent said that they are “very likely” to reduce staffing levels.
|In response to the higher minimum wage, how likely is it that you’ll reduce employees’ hours at locations in Seattle?||1. Very Likely||116||43.77%|
|2. Somewhat Likely||59||22.26%|
|In response to the higher minimum wage, how likely is it that you’ll reduce employees per shift or overall staffing levels at locations in Seattle?||1. Very Likely||112||42.26%|
|2. Somewhat Likely||64||24.15%|
Some business owners anticipated having to go beyond price increase and staff reductions to cope. Specifically, 43 percent of surveyed businesses are “very likely” to limit their future expansion in the city. Most concerning, one in seven surveyed businesses plans to close at least one location in the city in response to the new law.
|In response to the higher minimum wage, how likely is it that you’ll close locations in Seattle?||1. Very Likely||37||13.96%|
|2. Somewhat Likely||43||16.23%|
|In response to the higher minimum wage, how likely is it that you’ll limit future expansion in the city of Seattle?||1. Very Likely||115||43.40%|
|2. Somewhat Likely||48||18.11%|