A $15 Minimum Wage Will Not Turn Seattle into Detroit

     In economics, all models and theories come with a caveat: ceteris paribus, meaning “all things being equal”. So, ceteris paribus, an increase in the minimum wage will create a “deadweight loss” where there is a decrease in both consumer and producer surplus (the difference in what they actually pay vs. what they are willing to pay; essentially mental savings) due to the “price floor” the wage imposes on the market for labor, leading to a decrease in the labor demanded by companies.  So, at a minimum it should cause a decrease ALONG the demand curve (not a shift, which is a very important distinction).                                         

    That being said, all things are NOT equal. The cost of living has gone through the roof in comparison to wage growth, which has been stagnant, where there hasn’t been a decrease in real terms over the last thirty years. If the federal minimum wage (currently $7.25) were tied to inflation (Consumer Price Index: “cost of living”) it would be $10.55/Hour. If the federal minimum wage were tied to productivity gains in the economy, then it would be a whopping $21.16/Hour! (Productivity gains are essentially decreases in the Per unit Production Cost or  PPC -meaning workers are making a firm more money, at less of a cost to said firm) So in a sense, $15/Hour is the middle ground between productivity gains and the increase in inflation. This represents a so-called “living-wage”.

     Seattle also has a higher cost of living than the national average. While this minimum wage increase may decrease business demand for the lowest-skilled workers, it will be a boost for everyone who already makes more than the minimum. The increased minimum wage will put upward pressure on wages. For example, if you made $15/Hour before the wage increase, then you already have the expectation that you are paid and/or worth “more than minimum wage”. While there will be increased labor costs for most companies, the companies can pass the majority of the costs directly onto the consumer who will barely even notice the price increase because their wage just increased! It should also boost the local economy through increased demand and higher consumer spending, because people at the lower end of the income scale tend to have a higher MPC and a lower MPS, that is, they are much more likely to spend rather than save each additional dollar of income.

   

   On the whole, it really is a real life economic/social experiment, and we will have to wait and see what happens. But, keep in mind that when you hear these dire warnings from businesses about “going out of business”, “end of capitalism”,” Detroit”, etc…that business leaders said the same exact bullshit: when the minimum wage was first established, when child labor was abolished, when the 40-hour workweek was created, and on, and on they go with the same predictions of doom. And every time the end of the world has never come. Businesses will still make profits.