The Seattle City Council has made Seattle the first city in the nation to mandate a $15 minimum wage for all workers. Effective April 1, 2015, all businesses must pay $10-$11 per hour, with the remainder of the $15 wage phased in over seven years for small businesses (those with less than 500 employees), and three years for large businesses (those with 500 or more employees).
While supporters of the $15 wage mandate passed in June say it will have no negative impact on the city’s employment or economy, the reality is it is already killing jobs.
Some business owners in Seattle say they are holding off on opening new businesses or expanding their current business, delaying plans to hire new workers, and even moving to neighboring cities. In SeaTac, where some employers have been paying a mandated $15 minimum wage for six months, the benefits workers used to receive have been reduced or eliminated and prices have increased for consumers.
Restaurants, in particular, will be hit hard by Seattle’s new wage. The Puget Sound Business Journal reports one restaurant owner called the $15 wage a “mortal threat” and has halted plans to open another location. The CEO of a restaurant chain says his company is also holding off opening new locations in Seattle and will likely be forced to reduce employees’ health benefits. The company currently offers health care coverage to employees who work at least 25 hours per week, but that may now be increased to 30 hours per week.
That company will also likely eliminate tips for servers, instead automatically charging customers a service charge or gratuity that would be split between servers and other restaurant staff, such as kitchen workers.
Effects Felt Beyond Seattle
Seattle workers aren’t the only ones losing potential jobs and suffering benefit reductions as a result of the new law. In an unexpected twist, the $15 wage is impacting job creation and worker benefits in other cities.
A pizza franchise with 11 locations, six of which are in Seattle, that employs 430 workers has tabled plans to open another location, in Lynnwood, Washington, over concerns the new location and its new jobs would bump the company into the “big business” category.
Under the new law, “big businesses” have a shorter phase-in of the high wage—they must begin paying all workers $15 per hour over the course of three years. By staying under the 500-employee threshold, the company remains categorized as a “small business” and has up to seven years to phase in and adjust to the new wage for its six Seattle stores. That is 70-plus jobs workers in the city of Lynnwood just lost.
The company that says it may reduce health benefits in response to the $15 wage would have to do so for all of its workers, even those outside of Seattle. Federal law requires companies to offer the same health benefits to all employees. So if the company is forced to increase the threshold to qualify for health benefits in order to offset the new high wage of employees in Seattle, it must do so for all employees, including those earning a lower minimum wage in other cities.
‘Smaller Restaurants Will Die’
The CEO of the chain restaurant warns the increased labor costs imposed by the new law will force many small, mom-and-pop businesses out of business: “Successful downtown restaurants will find a way to make it work, but smaller restaurants will die.”
That sentiment is echoed by the CEO of CKE Restaurants, which owns the Carl’s Jr. and Hardee’s chains. Andy Puzder, author of the book Job Creation, says the push for a higher minimum wage is one of the greatest threats facing restaurants.
“I think you’ll see a lot of restaurants closing. I don’t think that restaurants can operate profitably if they’re paying a $15-an-hour minimum wage,” Puzder said on Fox News.
Erin Shannon ([email protected]) is director of the Center for Small Business at the Washington Policy Center. Used with permission of washingtonpolicy.org/blog.