Is the Emerald City in its twilight?
That’s the question making the rounds in the wake of a recent article published in Seattle Magazine, which prods into whether or not a rash of restaurant closings around the city can be blamed, at least in part, on the city’s imminent minimum wage hike. Naturally, there has been backlash across the spectrum, with conservatives merrily adopting an “I told you so” approach, while liberals and supporters of the initiative are busy pointing out some clear flaws in the analysis.
So, is that the case? Is Seattle’s minimum wage increase leading to a sudden increase in small business shutterings?
Short answer: no.
For one, the minimum wage hasn’t even increased yet. Seattle’s plan is to phase in the increase bit by bit, with the first increment scheduled to hit on April 1. That bump will set the minimum wage at $11 per hour, up from $9.47 per hour. Again, it’s hard to make the case that an increase in the minimum wage is ravaging an economy when it has yet to even happen. Still, that’s not to say that some business owners aren’t preparing for the worst, or simply quitting now while they have some money in the bank and are foregoing the option to attempt to stay afloat after the rules change.
There’s also another issue with the Seattle Magazine article, and it’s even addressed up-front by the piece’s author, Sara Jones. “Even great-tasting restaurants battle tough odds — especially new ones,” Jones writes. “The National Restaurant Association doesn’t have exact failure rates for restaurants in their first few years, but media relations and public affairs director Christin Fernandez reports that according to census data, about 60,000 restaurants open and about 50,000 restaurants close in an average year.”
To add on to those figures, Jones also reports that with approximately 2,300 restaurants within the Seattle city limits, it can be expected that around 400 of them will go out of business in a given year. Clearly, small businesses, and restaurants in particular, have a hard time staying open. It’s hard to blame that on the minimum wage which, again, has yet to even be increased.
Taking that into account, this doesn’t mean that businesses won’t go under once things change. The bump to $15 for minimum wage workers is going to cause some upheaval, that’s a given. That will mean that some companies go through a period of turbulence, and that some jobs will be lost. Structural unemployment levels will be impacted at the very least.
The simple fact is that we don’t know what the ultimate effect will be. But what you can bet on is that it won’t bring the entire city’s economy to a grinding halt. In fact, there is evidence of just the contrary. Washington state, which has the nation’s highest minimum wage at $9.32 per hour, actually leads the nation in job creation, per a report from Bloomberg.
A jump to $15 is quite the leap, however, so banking on a similar result would probably prove unwise.
Look at things from a business standpoint. Labor is only one input cost for running an operation. What Seattle businesses are looking at is a roughly 60% increase in that cost. But it’s not the only input cost they’re dealing with, and just as businesses adjust with the fluctuation in other input costs — say increases in food prices, or basic utilities — they will deal with increased labor prices. The most simple way to do so? Raise prices they charge customers.
In all likelihood, we probably won’t be able to gauge whether or not a drastic spike in the minimum wage like we’re about to see in Seattle has its desired effects. One thing is for sure: It is far too early to be blaming the minimum wage for small business collapse within the city, especially since the full $15 shift isn’t scheduled to be completed for another three years.
Follow Sam on Twitter @SliceOfGinger