University of Washington Evans School of Public Affairs Study
Report for the City of Seattle, Income Inequality Advisory Committee March 21, 2014
This report describes the characteristics of low-wage workers living or working in Seattle, the size and employees of local businesses, and the costs of living in Seattle. Most of the analysis focuses on Seattle residents, but we also look at how many Seattle workers live outside the city.
A: Worker Characteristics (pages 5 to 17):
• About a third of Seattle residents earn less than $15 per hour, compared to only 19% of those who work in Seattle and live outside of the city.
• About 100,000 people working in Seattle earn less than $15 per hour.
• 40% of those working in Seattle and earning minimum wage live outside the city.
• Among the lowest wage Seattle residents, 55% work in the city– lower than for all workers (63%).
• Low wages are more likely among workers with characteristics typically associated with low wages: younger workers, less education, being female or a racial/ethnic minority, poor, or receiving public assistance.
• However, the majority of those earning low wages mirror the population: non-poor, some college education, white, and not receiving public assistance.
• Family incomes are lowest for Seattle residents earning minimum wage (median of $16,853 per year) and highest for those earning over $18 per hour (median of $89,780); in between they are fairly flat with medians between $30,000 and $35,000.
• The most common occupations for low-wage workers are: Food Preparation and Serving, Sales, Office and Administrative Support, Personal Care and Service, and Transportation and Material Moving.
• The most common industries for low-wage workers are: Accommodations and Food Services, Retail Trade, Health Care and Social Assistance, and Educational Services.
B: Business Characteristics (pages 18 to 26):
• Three-quarters of Seattle’s establishments have fewer than 10 employees, but less than 12% of workers in Seattle are employed by an establishment with fewer than 10 employees.
• Only 3 percent of Seattle establishments have 30% or more of their FTEs earning the state minimum wage. A much larger share of Seattle establishments (27%) have 30% or more of their FTEs earning $15 or less.
• Less that 20% of Seattle establishments with a large proportion of low-wage workers (30% or more of their FTEs) operate in other Washington jurisdictions in addition to Seattle.
C: Poverty and Work in Seattle (Pages 27 to 29)
• 13.6% of Seattle residents had income below the official poverty line in 2012.
• Half of poor persons age 16 or older worked at least one week in the past year. They worked an average of 27 weeks per year.
D. Estimates of Living Costs (pages 30 to 35)
• “Living wage” incomes have been calculated by 3 organizations to estimate living expenses by family size.
• Estimates of living wages for Seattle residents vary widely depending on family size and the authors’ methods. They range from $7.72 per hour for a childless couple with two full time workers to $25.44 for a single parent of one child. E: Comparison of Seattle workers and costs to other cities (page 36-40)
• Seattle’s low wage workers are similar to those in Denver, Portland, Sacramento and San Francisco in gender and disability status. For the other demographic characteristics, there is no overall pattern to the differences.
• The cost of a modest standard of living in Seattle is significantly lower than in San Diego or San Francisco and similar to Sacramento’s. Depending on the method, it is either comparable to Denver’s and Portland’s, or 10-15% higher.
F: Possible Changes in Poverty, Earnings, Basic Food, and Business Costs (pages 41 to 47):
We have made simple simulations of maximum possible changes in earnings, food stamp eligibility, poverty, and business payrolls. These estimates do not account for any possible adjustments in employment or businesses.
• If there were no changes in the labor market (which is unlikely), typical employees earning the minimum wage of $9.32 and working 1,040 hours a year could see their annual earnings increase by up to $2,912 (30%) if the minimum wage increased to $12.12. Fully employed workers’ earnings could increase by $5,600.
• With a minimum wage increase to $15.00, employees making the current minimum wage could increase their earnings by $5,907 (61%) if they worked the median (1,040) hours or $11,360 if they worked full-time all year.
• For a family of three with median family income for $9.32 workers, food stamp benefits could drop from $348 dollars to $227 with a $12.12 minimum wage, and to $75 with a $15 wage. Drops would be less for workers working fewer hours and benefit levels are lower for smaller households.
• An increase in the minimum wage to $15.00 per hour is simulated to reduce poverty from 13.6% to 9.4% if employment and hours did not change. Nearly three-quarters of this decline would be achieved by raising the minimum wage to $12.12 per hour, with the poverty rate falling from 13.6% to 10.6%.
• Changes in payroll costs attributable to changes in the minimum wage depend on the number of workers earning less than the new minimum wage. In three hypothetical businesses, we found Page 4 of 60 payroll costs could increase by 9 to 23% with a change to a $15 minimum wage. This would be higher if employers maintained pay ladders by increasing wages for other workers and lower if employers decreased work hours, hired more productive workers, or moved employment outside the city.
University of California, Berkley Study
Report prepared for the Seattle Income Inequality Advisory Committee March 2014
As cities and counties across the country increasingly debate whether to establish their own minimum wage laws, policymakers are understandably asking a host of questions. How are existing laws designed? What do we know about the impacts of local wage mandates on workers and their families? What does research tell us about the effect of local wage mandates on employment, and, in particular, do businesses move outside city or county borders in response? In this report, we address these and related questions.
Existing local minimum wage laws
• Nine localities in the United States currently have enacted minimum wage laws: Albuquerque, NM; Bernalillo County, NM; Montgomery County, MD; Prince George's County, MD; San Francisco, CA; San Jose, CA; Santa Fe, NM; Santa Fe County, NM; and Washington DC. (Richmond, CA, just voted to raise its minimum wage to $12.30 an hour by 2017, and a final vote is pending to pass the law.)
• Current mandated wage levels range from $8.50 in Bernalillo County to $10.74 an hour in San Francisco. (New wage mandates in Washington DC and Santa Fe, Montgomery, and Prince George’s Counties go into effect later this year.)
• On average, the existing local minimum wage laws have mandated total wage increases of 41.4 percent, many of them in multiple steps and the majority indexed to inflation thereafter. Localities with larger increases have been more likely to implement them in several steps. Across the localities, the average per-step minimum wage increase is 16.7 percent.
• The nine laws are similar in covering the large majority of work that is performed within the boundaries of their cities or counties. San Francisco delayed coverage of nonprofits and small businesses (less than 10 employees) for one year. Santa Fe initially exempted small businesses but later amended its law to cover all establishments.
• Two of the nine laws (San Francisco and San Jose) follow their state’s law in treating tipped workers the same as non-tipped workers, maintaining a uniform minimum wage for both groups. The other seven laws follow their states’ laws in maintaining a lower minimum wage for tipped workers (even as some increased the base wage for tipped workers). Several of the laws make similar provisions for commissioned workers.
How San Francisco enforces its minimum wage law
• San Francisco uses a variety of high-impact enforcement and education strategies to ensure that the city’s minimum wage law has its intended effect.
• From the beginning of 2004 to mid-2012, San Francisco’s enforcement agency processed 616 worker complaints related to the minimum wage and recovered $5.8 million in back wages on behalf of 3,004 workers. These are higher benchmarks than typically achieved by state and federal enforcement agencies.
• San Francisco’s Office of Labor Standards Enforcement assigns 7.5 compliance officers to minimum wage enforcement on behalf of approximately 611,000 people employed in the city. These officers share responsibility for enforcement of the city’s paid sick leave law as well.
• Approximately $979,000 supports the 7.5 positions devoted to minimum wage enforcement. In addition, $462,125 is contracted to community organizations that provide education, outreach, and case referrals, largely focused on minimum wage violations. Effects of minimum wage laws on workers and families.
• Researchers consistently find that minimum wage laws raise pay for workers at the bottom rungs of the labor market. These increases include both directly affected workers (those earning between the old and the new minimum wage) as well as those indirectly affected (those earning above, but near, the new minimum wage).
• Raising the minimum wage also pushes up the wage floor relative to the median wage, thereby reducing pay inequality.
• Researchers consistently find that the affected workers are largely adults and disproportionately women and people of color.
• New research on the effect of minimum wage increases documents important reductions in family poverty rates and enrollments in public assistance programs, such as food stamps.
• Researchers have not estimated the amount of economic stimulus actually created by the new spending power of low-wage workers after minimum wage increases. We do know that low-wage workers and their families are likely to spend a significant portion of those increased earnings.
Effects of minimum wage laws on businesses
Economists have increasingly recognized that raising the minimum wage does not automatically mean that employment will fall. Increased labor costs can be absorbed through a variety of other channels, including savings from reduced worker turnover and improved efficiency, higher prices, and lower profits. Modern economics therefore regards the employment effect of a minimum wage increase as a question that is not decided by theory, but by empirical testing.
• Labor economists continue to debate the actual impacts of the minimum wage on employment and hours. We discuss in our assessment the most rigorous studies and offer a non-technical explanation of the nature of the disagreements in the research literature.
• To date, three rigorous studies have examined the employment impacts of San Francisco’s and Santa Fe’s local minimum wage laws. Each finds no statistically significant negative effects on employment or hours (including in low-wage industries such as restaurants).
• A larger body of economic research investigates the effects of state and federal minimum wage increases. These studies compare employment trends for states or counties that have different minimum wages. The best studies make comparisons to nearby states or counties to control for regional economic trends. These studies also find no statistically significant negative effects on employment or hours at an aggregate level or for low-wage industries such as restaurants and retail stores, or for specific groups of workers such as teens. These studies also do not find substitution effects (such as shifts in hiring away from black and Latino teens).
• Studies of the impact of minimum wage increases on restaurants’ operating costs find that an increase of 10 percent in the minimum wage increases operating costs by about 1 to 2 percent.
• Researchers find small one-time price increases in the restaurant industry (of about 0.7 percent following a 10 percent minimum wage increase), but not in other industries.
• Researchers find that increases in the minimum wage reduce employee turnover, translating into a reduction in direct costs (recruitment, selection, and training of new workers) and a reduction in indirect costs (lost sales, lower quality service, and lost productivity as the new workers learn on the job). Some studies have also identified additional benefits of higher wages, including improved morale, improved work performance, and reductions in absenteeism.
• Researchers have not found evidence that employers absorbed minimum wage increases by reducing health benefits or pensions.
In summary, our assessment of the research evidence indicates that minimum wage mandates raise the incomes of low-wage workers and their families, and that the costs to businesses are absorbed largely by reduced turnover costs and by small price increases among restaurants.That said, it is important to emphasize that existing research is necessarily limited to the range of minimum wage increases that have been implemented to date. While these studies are suggestive, they cannot tell us what is likely to happen when minimum wages are increased significantly beyond current local, state, or general mandates.