When it comes to the $15-an-hour minimum wage debate—what it will do to Seattle's economic landscape, whether restauranteurs should be able to count employees' tips against their wages—we're drowning in wild speculation, fear-mongering, and sob stories of questionable relevance.
We've been long on emotions and short on data.
That's partially because the phenomenon of cities raising their minimum wages is relatively new, but we do have some examples including Santa Fe, Albuquerque, and San Francisco.
San Francisco is particularly important—in the 1990s, it began a series of bold experiments in improving wages and conditions and opponents predicted disaster. Now it's got a minimum wage of $10.74 an hour, and the wage is the same for tipped and non-tipped employees.
Earlier this year, economists Michael Reich, Ken Jacobs, and Miranda Dietz published When Mandates Work: Raising Labor Standards at the Local Level, a collection of studies of what happened in San Francisco after all those pro-labor laws. (They estimate that with sick leave and health spending, the actual "minimum compensation" in San Francisco is around $13.12.) You can see some quick snapshots of their data here.
The news is good. As they put it in a recent New York Times article: "Our studies show that the impact of these laws on workers’ wages (and access to health care) is strong and positive and that none of the dire predictions of employment loss have come to pass. Research at the University of New Mexico on Santa Fe’s floor (now $10.66) found similar results."
What about small businesses closing? "We did not find smaller restaurants closing at a higher rate," Reich wrote in an email.
Why is that? How did restaurants absorb the minimum-wage increases? Again from the New York Times article:
Our research and that of other scholars illuminates how businesses actually absorb minimum wages at low-wage industries. Higher standards have an immediate effect in reducing employee turnover, leading to significant cost savings. Minimum wage increases do lead to small price increases, mainly in restaurants, which are intensive users of low-paid workers. How much? A 10 percent minimum wage increase adds 0.7 cents on the dollar to restaurant prices. Price increases in most other sectors, like retail, are too small to be visible, partly because retail pays more than restaurants.
And tipping? Is there any evidence that, as some business owners are claiming, "tips will probably go away" if tipped servers are paid the same minimum wage as everybody else?
"Little is really known about how tips respond to a higher minimum wage," Reich told The Stranger, but added that research by his colleague Sylvia Allegretto has shown that servers' earnings are lower in states with full or partial tip credits. Which is to say, there's no evidence that lower waitstaff wages result in higher tipping or that higher wages result in lower tipping. Her research has also shown that the gap between the minimum and sub-minimum (tipped staff) wages was 50 percent in 1966 but had grown to 71 percent in 2012.
The bottom line, according to Reich and his fellow economists studying San Francisco (the closest thing we have to a comparison):
We find that the San Francisco wage floor policy increased pay significantly at affected restaurants and compressed the wage distribution among restaurant workers. The policy increased average pay by twice as much among fast-food restaurants as among table-service restaurants. We do not detect any increased rate of business closure or employment loss among treated restaurants; this finding is robust across a variety of alternative specifications and control subsamples.
Wages went up, restaurants didn't close, it didn't become a city of mega-chains, and the sky didn't fall.
That's not speculation. That's the data.
Obviously, Seattle is not San Francisco and what happened there is not exactly what will happen here. But, like Seattle, San Francisco heard a raft of gloomy predictions about what would happen if they kept bumping up wages.
Those predictions have not come true.
