Angie Garcia, a single mom who works at the McDonald's in Ballard, has planned how she’s going to spend the extra money she makes after the minimum wage increases to $11 an hour on Wednesday.
“It’s going to change everything. Because I can go back to school, I can start my college, so that is really big for me, like a really, really big help,” Garcia, 20, said. She currently earns $9.60 an hour.
Garcia and her 4-month-old daughter Sophia live with her mom and stepdad in Shoreline. She departs for work at 4:30 a.m., leaving her daughter with her mom, who is injured from a recent car accident.
“I feel bad because I can’t pay her,” Garcia said. “She understands, but I’d feel better if I can pay her a little bit.”
Supporters of the minimum wage law say the whole economy will benefit from so many low-wage workers getting such a substantial raise. But Seattle’s new minimum wage is uncharted territory. No other city has ever attempted an increase of this scale. So who is likely to be helped, and who hurt? And how did it get to be $15, anyway?
The theory behind the higher minimum wage is called “middle-out economics.”
Kshama Sawant, the first Socialist elected to the Seattle City Council, explained: “You know, because your income is so small, that when you get a slight increase in wages, you do tend to do things you wouldn’t otherwise do,” she said, “probably buy better groceries, probably take your family out once in a while for a meal at a restaurant, buy your kids some ice cream, buy your daughter some books.”
Middle-out economics is the counterpoint to trickle-down economics, a theory popularized in the 1980s that says tax cuts for businesses and the rich will eventually trickle down to those earning less.
Critics have long debunked trickle-down economics, however, demonstrating that the wealthy tend to save extra money rather than spend it.
Proponents of middle-out economics say lower income workers trigger growth, because they spend that extra money to make ends meet. That means more money flowing through the economy, and more sales tax being collected.
Garcia is their perfect example. If she keeps her current job at McDonalds, she would earn about $11,000 more a year by 2017, when the hourly minimum wage is $15.
Not Just Social Justice
Nick Hanauer’s comfortable office on the 28th floor of a downtown Seattle high-rise commands a sweeping view of Elliott Bay.
Hanauer is a venture capitalist who made his fortune as an early investor in Amazon. He has long been active in progressive causes, from pushing for an estate tax to gun control.
It was Hanuaer and author Eric Liu who coined the term “middle-out economics” during the last presidential campaign.
“Raising the minimum wage isn’t a matter of social justice, it’s a matter of growth,” Hanauer said.
Examine the minimum wage through a business lens, they say, and the next question is how high it should be to boost the economy.
Hanauer and Liu settled on $15 as the optimal amount. It was halfway between where the minimum wage would be if it had tracked inflation, and where it would be if it had tracked productivity gains over the past 30 years, he said.
Once they had arrived at a dollar amount, Hanauer said, they went about applying it.
Hanauer is good friends with labor leader David Rolf. In 2013, Rolf’s union, the Service Employees International Union, began organizing one-day walk outs of fast-food workers around the country. They made $15 an hour their central demand.
“There was an enormous amount of work that went into evolving the theory of growth before you began to hear about it in Seattle,” Hanauer said. “This was not an accident. It was a plan, and executed, if I may say so, very well.”
‘A Whimsical Idea’
Not everyone accepts the theoretical framework of Seattle’s new $15 hourly wage.
Peter Nickerson, a former Seattle University economics professor, is a dissenter.
“Nationally, there is a lot of thought that this is a real whimsical idea, going to $15,” Nickerson said. “You don’t see a lot of places just all of a sudden going, ‘Oh, this is a terrific idea, let’s go to $15.’”
Nickerson believes that one of the biggest negative impacts of the minimum wage increase will be on workers themselves. In Seattle, about 100,000 people earn less than $15 an hour, according to a University of Washington study.
With labor costs set to rise about 60 percent over the next few years, Nickerson said employers will demand more from their employees.
“There will be a shift, but the people who have very few skills are going to be pushed out, and I am afraid that we are going to be doing a cleansing of this labor market at the bottom,” he said.
“You don’t have to stretch it very far to say that we could lose 20,000 jobs.”
That possibility makes many employers uneasy.
Jeremy Hardy is part-owner of three restaurants in Seattle, including Coastal Kitchen on Capitol Hill.
Hardy said he supports a minimum wage increase, but $15 came as a shock, especially for an industry that already operates on thin margins.
On a good day, running a restaurant is like “juggling with clubs,” he said. But with the $15 minimum wage, “we are juggling with razor sharp daggers, and if you don’t get it right, it’s really going to hurt,” he said.
For Hardy, it’s a question of math. Labor accounts for about one-third of his total costs. With wages rising dramatically, Hardy is looking for other places to trim. He’s already opening Coastal Kitchen on 15th one hour later and closing one hour earlier.
“We are taking a look at all of our operating hours,” he said. “I am going through the hourly sales, and if it is not making money, if it is not profitable, we are not going to do it, because we can’t afford to.”
Hardy has already raised his menu prices 3 percent this year in anticipation of the April 1 increase. He said he will probably have to raise prices every year. But he’s not sure how high he can go.
“If everything went up a dollar on our menu, I think the public would probably be OK with that,” he said. “But if you are talking about a $5 latte, I don’t think so.”
Hardy said restaurant owners are talking about eventually adding a service charge for labor directly onto each bill.
But he said he believes he and other veteran restauranteurs will survive. Getting through the recent recession honed his business skills, he said. But he worries about those who are just starting out.
“If it were me 20 years ago, I am not sure I would have had the tools to have dealt with this,” he said.
But there may be a silver lining. Hardy said that restaurant owners have collaborated as they never have before, to share strategies on how to survive in this new labor market.