Natural experiments from Washington State?

by on October 13, 2013 at 8:17 pm in Current Affairs, Economics, Law | Permalink

Washington already has the highest state minimum wage in the country, at $9.19 an hour. Soon, voters in this tiny city south of Seattle will decide whether to push the local minimum even higher.

If a majority of the voters here say yes to a referendum known as Proposition 1 when their mail-in ballots start arriving this week, a minimum wage of $15 an hour would be required for many businesses in SeaTac, more than twice the federal minimum of $7.25.

There is more here.  Of course doing this in a single locality is the least advantageous setting for such a policy experiment.  That said, the Sea-Tac airport (and associated concerns) is by far the biggest employer in the city and that entity may well face inelastic consumer demand in response to higher prices, provided those price hikes can be collectively enforced across all the sellers in the airport, which is indeed what a minimum wage hike would bring.

Strawmn October 13, 2013 at 8:56 pm

I wonder if a single locality would be a good natural experiment in any case, even if demand in the area was fully elastic. SeaTac is right in the center of the Puget Sound metroplex, so there’s almost no marginal costs to shifting demand elsewhere.

Conversely, a national minimum wage would be rather more difficult to escape by accessing other service markets. That’s not to say it wouldn’t have effects (export/import channel, reduced demand, changing wage distribution, maye a weird flattening of prices between low-end and moderately low-end market goods) but I don’t think a local and national experiment would be very transferable.

mw October 13, 2013 at 8:58 pm

I, for one, will only agree to higher airfares that result from technological marvels and modern innovative service improvements such as covering the “cost” of providing a hole to shove some underwear in the overhead bin. I draw an indelible line at allowing industry employees a living wage. (Now, if these selfish employees would agree to hold my bag of underwear, then maybe there’d be something to talk about)

dan1111 October 14, 2013 at 6:24 am

You see it as “allowing” a wage, I see it as denying people the right to freely, voluntarily make contracts with each other. If I want to work for $1 an hour, I should be able to do so.

Beyond that, yeah, I want people to be able to make a living wage, too, but is this actually welfare-improving? A high minimum wage will cause some businesses to close or scale back, raise the cost of goods and services, and greatly reduce the number of entry-level positions available. Will all of this be offset by the wages of some people going up?

Finally, all of this is driven by the idea that there is a whole class of people who, despite being hard workers, toil in perpetuity stuck at minimum wage. I think this is largely mythology. In my experience, there is plenty of upward mobility even in entry-level positions.

Brian Donohue October 14, 2013 at 8:53 am

Something like 2% of those over 24 toil at the minimum wage.

This is about reducing the number of jobs for young people- just what the doctor ordered. Yay.

That is Because They Get Raises October 14, 2013 at 12:41 pm

Maybe only 2% of people 24+ toil at the minimum wage but what percentage toil at the minimum wage plus a few cents? Or plus a buck? Probably a lot higher than 2%.

Dan Weber October 14, 2013 at 10:11 am

In Puget Sound, what is the unemployment rate for minimum wage workers, and what is it for people whose labor is valued by the market at $15 / hour?

I suspect this provision will simply transfer jobs from the first group to the second, unless the second is already near full employment.

D T Nelson October 13, 2013 at 9:19 pm

I have heard through the political grapevine that there is some disagreement among the Commissioners of the Port of Seattle, the government entity that owns and runs SeaTac Airport, as to whether this law would apply to it. The makeup of the Port Commission is subject to change after the upcoming election.

Also note that both candidates for Mayor of Seattle say they support a Seattle minimum wage of $15.

Brett October 13, 2013 at 9:38 pm

$15/hr in Seattle would be a better experiment, since most of the businesses in Seattle can’t just pack up and leave (and those that can usually pay more than $15/hr anyways, like the jobs requiring degrees). They’ll have to instead probably pass it on as a cost increase, which is annoying but almost certainly outweighed by the benefits of a higher minimum wage to lower income earners.

mike October 14, 2013 at 3:21 am

yes, thank goodness for the exorbitant minimum wage, or these congenitally stupid human detritus might be forced to relocate to a place where they are the norm! And instead, we’re displacing genuine intelligent humans and forcing them to go elsewhere!

Eric October 15, 2013 at 10:54 am

As a resident of rural washington, I have seen many communities benefit from businesses leaving Seattle to relocate in lower cost areas. In Seattle, the cost of living is 2-3 times higher than most of the rest of the state. Those businesses that need a lot of minimum wage employees can find a better pool elsewhere. As for the airport, if there is much difference in the total cost of air travel many of us will drive to Vancouver, BC and fly much cheaper in most cases. Some flights are so much cheaper that you can drive 3 hours from Seattle to BC and still be money ahead ( not as time efficient of course).

W.E. Heasley October 13, 2013 at 9:38 pm

Ah, so both candidates for Mayor of Seattle support a Seattle minimum wage of $15. Go figure. Politicos hard at work!

Ahoy, matey! Snake oil spotted on the Puget Sound! Ayyyy, matey! A full torso apparition of Richard Nixon spotted as well.

Roofs or Ceilings? Milton Friedman and George Stigler, 1946.

http://www.fee.org/library/detail/roofs-or-ceilings-the-current-housing-problem#axzz2hehUj5Uh

Steve Sailer October 13, 2013 at 9:42 pm

Labor has its best chance to extract higher wages where there are enormous capital investments or natural resources that would be very expensive to move: mines, harbors, the River Rouge Ford factory, or major airports. Even the Sea-Tac Doubletree hotel, which is hilariously large, would be quite expensive to reproduce somewhere outside of this one municipality.

Mark Thorson October 13, 2013 at 10:46 pm

Couldn’t they convert everybody to independent contractors?

Steve Sailer October 14, 2013 at 1:45 am

Lawyers will profit the most from this law.

Dan Weber October 14, 2013 at 10:14 am

State employment boards are pretty good at recognizing this trick. It’s especially easy to spot if it’s the same employee doing the same work in both cases.

Willitts October 14, 2013 at 12:50 pm

They already have. In recent years the number of airport vendor employees who speak English well has been dwindling. The part that is most disturbing is that government is also hiring private contractors which employ illegal aliens. It is tough to find low skilled workers in America who don’t have a criminal record. Ironically, illegal immigrants are the most trustworthy and they don’t need efficiency wages because they are so easily replaced and disciplined. More ironically, these workers don’t have the pay, benefits, and protections that some people consider a measure of human dignity; these same people support the immigration.

BS October 14, 2013 at 1:43 pm

“It is tough to find low skilled workers in America who don’t have a criminal record”

I beg you to provide some kind of hard data. It sounds like complete BS. We’re at 15% underemployment – people are begging their employers for more hours – and the labor participation rate is dropping 30 bps year over year (not due to demographics – the older folks are nor retiring) but there’s somehow a lack of low skilled labor sans criminal records? Now way, no how.

Willitts October 14, 2013 at 2:48 pm

Let me amend that by saying it is tough to find willing and available low skilled labor that doesnt have a criminal record. The demand for illegal immigrants is the proof. Crime statistics within urban areas is more evidence. There is no direct evidence because it is not politically correct to report it. You really doubt that large swaths of our population have criminal records and thus can’t or won’t find a job? Is this controversial? I thought it was common knowledge we have a high incarceration rate.

Employers are not hiring people full time because of the many “strings” put on them by federal, state and local government. The discouraged persons and those outside of the labor force are the ones of whom I speak.

The LFPR dropped because people had been drawn or kept in the LF during the boom by opportunity. Now that the opportunity is gone, many have voluntarily left. The nature of bubbles is that it robs resources from the future. Resources are overused, and this depresses demand for those same resources in the future until the excess burns off. For long lived assets like houses, cars, bridges, etc, the effects can last many years. Of course, the only solution most politicians can come up with is to rob more from the future.

BS October 14, 2013 at 4:23 pm

I’m not arguing full-time vs. part-time – I understand the incentives to hiring part-time. I’m not arguing that we do not incarcerate the highest percentage of citizens in the industrialized world.

But I strongly believe the demand for illegal immigrants is due to the lack of power held by the immigrants due to their status. They cannot protest salaries below the minimum wage or dangerous working conditions due to their fear of deportation. There are tons of Americans without criminal records who are willing to work for the minimum wage – retail workers are begging for more hours – and they can’t get second jobs because their employers give them erratic hours each week due to employment optimization software.

I don’t believe the myth that there is a shortage of low skilled labor in this country – not for one second.

And even if someone does have a criminal record, that shouldn’t disqualify them from working for the rest of their lives. We should put ex-cons to work before we open the borders to masses of unskilled immigrants.

Colin October 13, 2013 at 9:45 pm

From the article:

Another Council member, Mia Gregerson, is swinging hard the other way, reminding voters about the economic inequality that haunts their community even as the high-tech, high-salary economy of Seattle soars some 15 miles to the north. About 10 percent of the workers potentially affected by the referendum live in SeaTac.

“The middle class is disappearing,” said Ms. Gregerson, who grew up in the city. “We have people starving. We have people going homeless.”

Gregerson seems like the easy-going type.

dan1111 October 14, 2013 at 7:07 am

Claims like “we have people starving” can be made all day long without ever being challenged. I suppose because anyone who questioned it would be thought a heartless Scrooge. However, enough of this nonsense! Anyone who actually cares about helping people should care about accurately measuring the problem. She should be held accountable for this statement.

George October 13, 2013 at 10:05 pm

How is this any different than what San Francisco has been doing for the past decade or so?

Bryan Willman October 13, 2013 at 10:13 pm

San Francisco is at least arguably the core city of the bay – there’s a there there.

SeaTac the town is a little hole between other towns that only became a city a few years ago, and consists of basically nothing other than SeaTac the airport and support thereto.

What’s more, SeaTac the city isn’t very large – it will be quite easy for employers to move a short distance to escape their jurisdiction if they don’t actually have business related to the airport (and sometimes if they do!) That’s rather harder in San Francisco or Seattle.

Bryan Willman October 13, 2013 at 10:11 pm

Folks at seatac also made “citizens arrests” of various ride-sharing cars that dropped people off at the airport. So I think we can predict a “commanding heights” line of reasoning here – a path that eventually assures a particular number of jobs at a particular wage rate, and a fair amount of unemployment to go with it.
One wonders if SeaTac (the town) will end up with zero jobs outside of choke-point SeaTac (the airport) because every other employer moved somewhere cheaper.
I suppose this is a way of redistributing income from travelers to airport and airport support staff, but wonder if a smallish town with little of note except an airport ought to be making such decisions. Smells a little bit like highway robbery…

[Note that if SeaTac the airport turns out to be immune due to port authority structure, SeaTac the town has really put pricing pressure on itself - there's nothing there but airport support.]

Nyongesa October 14, 2013 at 12:10 am

I owned a business In Seattle for some years and frequently used SeaTac and it’s car rental facilities. It was a unpleasant shock to encounter the extra fee’s tacked onto car rental charges. I’ve experienced the Denver, and San Francisco versions that are geared towards covering the cost of new rental car facilities, but at SeatTac these were way and above anything I had seen elsewhere and struck me as a nice way to fleece travelers and outsiders at a key choke point. As you put it, it’s the modern version of highway robbery.

D T Nelson October 14, 2013 at 3:02 pm

Offered as an aid to future travelers to Seattle: Yes, if you rent a car at SeaTac you pay very high taxes and fees. If you rent a car at a downtown Seattle rental location, you pay much lower taxes and fees. What few know is that the name-brand rental companies will let you pick up your car downtown (or at other locations in the region) and drop it at SeaTac and it will not be considered a one-way rental. So get off your plane at SeaTac, hop on the light rail downtown (Westlake Station) for a 30-minute ride for $2.75, walk a couple of blocks to Hertz or Avis, and rent your car for much less — maybe hundreds less, depending on the length of your rental. At the end of your visit, drive to SeaTac and drop your car at the rental facility.

The one thing to watch out for with this method is that the downtown locations are not open 24 hours, so it only works if you arrive while they are open.

Marie October 13, 2013 at 10:19 pm

Sounds to me like a way to try to keep the riff raff out of the neighborhood.

You’re essentially going to take all those low rent services and move them outside the boundaries of the municipality. So, no more worries about Walmart and Taco Bell building near your neighborhood and lowering the property values, and in coastal cities all smooshed together it’s not much of a burden to drive to the next location to get your Big Mac. Also, you’ll drive the cost of living up so that even if there are some lower class citizens working the $15 an hour jobs at those inflexible locations, they probably won’t be able to live within the city boundaries.

I’m sure plenty of people are trying to do the right thing with this, but I have to wonder how much self-interest is involved.

y81 October 13, 2013 at 10:33 pm

Yeah, really, our building (on Central Park West in Manhattan) has a minimum wage of $15, i.e., you need a six figure income to think of affording an apartment here, and the handful of building staff and household servants generally get that much. In short, no riff raff. As long as you can run an economy based entirely on high-income professionals and their personal servants, $15 per hour is no problem.

(For those who are curious, I note that that domestic service involves work which is moderately unpleasant and considered demeaning by many, and which demands high levels of conscientiousness and honesty, since the servants are in expensive apartments unsupervised. So it pays fairly well.)

Nik October 14, 2013 at 1:17 am

Seatac is all riff-raff, as far as I can see. So this particular example is not an attempt to keep out the riff-raff.

Marie October 14, 2013 at 9:20 am

I had a different image, having only been in the area once, will totally accept the correction.

Out West we have a lot of resort towns with trailer parks a few miles down the highway from the city limits. If Seatac *is* the trailer park down the road, I’m all wrong.

Therapsid October 13, 2013 at 10:24 pm

Good. This is federalism at work. The original progressives of the turn of the 20th century supported this kind of state initiative. Their descendants today want the federal government to be responsible for everything.

The benefit is obvious – if this policy is a failure, workers can easily move to Oregon or wherever.

dan1111 October 14, 2013 at 10:49 am

I’m a believer in federalism, too, but dumb things remain dumb no matter how small you do them.

And in this case, there is a good chance they will just be able to benefit from it by extracting the cost from others. They have a captive audience in airport users. It is similar to a small town that has a speed trap and tickets as many passing motorists as possible to raise funds. Or to pork barrel projects. Both harmful overall, but still beneficial to people on the receiving end.

Peter M October 13, 2013 at 11:12 pm

Curiously, Washington State has the most regressive tax policies of all 50 states, hitting the poor quite badly. http://www.itep.org/whopays/ They also could just shift the state tax burden.

8 October 13, 2013 at 11:13 pm

.38 Special “Hold on Loosely”, goose that lays the golden eggs, etc.

This is also a story of small-time government. You can see this story repeated in small towns all over America: they have a big local employer seemingly unable to move and the town pumps them for money whenever they need it. Sometimes it takes a long time, but the business eventually gets fed up and moves out. It looks like a minimum wage story, but I would wager there are going to be more taxes or regulations put on the airport, and then Seattle residents will start talking about how Seattle needs a smaller commuter airport for the population on the north side (or is there one already). And then it will expand and put in a big runway, yada yada….

Steve Sailer October 14, 2013 at 12:20 am

Yes, but how often are new airports built these days? Heck, it took years for Wal-Mart and the Walton family to get a jet airport built near Wal-Mart’s headquarters, and that’s in the middle of nowhere in Northwestern Arkansas. Getting all the permits to build or vastly expand a new airport in the rich, crowded, environmentally sensitive Seattle area would be a herculean task. Whoever tries to build a new airport would get shaken down by politicians, lawyers, environmentalists, and homeowners on a vastly larger scale than a bunch of shuttle bus drivers wanting $6 more per hour.

The way anybody makes more than the natural rate of return is by exercising some degree of monopoly power. A giant airport enjoys a degree of monopoly power, so it’s no surprise that everybody involved wants to carve themselves a little slice of those returns.

mulp October 14, 2013 at 1:04 am

What is the natural rate of return for a person that needs $25,000 of income per year to live?

Is it different from a small business that needs $25,000 of income a year to pay rent and utilities?

mike October 14, 2013 at 3:27 am

What is the natural rate of return for an economically illiterate retard who posts non sequiturs in blog comment threads?

Ray Lopez October 14, 2013 at 3:33 am

Another vainglorious attempt by the West to hold back the tide of cheap labour from the East. Here in the Philippines, people work hard for eight hours for $5 US. For the whole day. And that’s for a job inside a building. Ditch diggers and pedicab drivers, who really work hard, get half that. Imagine the poor in the USA working for $2.5 a day, lol. Crybabies.

Rahul October 14, 2013 at 4:37 am

That sort of comparison is fun but misleading unless you adjust for the low cost of living too.

Andrew' October 14, 2013 at 8:08 am

Same with the minimum wage. What is the real minimum wage?

Which is of course why we know a Federal mandated minimum wage can be many things, but what we know for sure is that it’s wrong.

The Anti-Gnostic October 14, 2013 at 12:24 pm

Ergo, that “tide of cheap labour” from the East just means more labour gets deployed instead of more capital and we just reproduce Manila in, say, Fairfax. It seems pretty obvious that a capital-intensive economy can afford to pay more people more money to be academic economists than a labour-intensive economy. I guess the econ department at GMU is just trying to take one for the team.

It’s also pretty striking how many high-g individuals from labour-intensive economies migrate to capital-intensive economies where they lecture their hosts on the benefits of a labour-intensive economy. When their policy dreams come true, I guess they’ll just move on to the next host.

Charlie October 14, 2013 at 3:36 am

I know professional pilots making less than $20k/yr. I guess they should quit upon landing at SeaTac and start slinging tacos.

Steve Sailer October 14, 2013 at 7:46 am

“I know professional pilots making less than $20k/yr.”

That’s like a Dave Barry novel come to life.

Andrew' October 14, 2013 at 6:32 am

Make it $20.

I hate half-assed factor changes.

Solutions? October 14, 2013 at 1:55 pm

So many problems – what are the solutions? 50% of every human population will be below average in terms of skills and abilities. More education isn’t the answer because you still have 49.99% trailing the other half and plenty of low skilled work that needs to get done (until the robots truly take over). For all of humanity a healthy body and strong work ethic were enough to provide a livable income but we’ve offshored and automated everything from factory work to medical diagnostics to programming so now we’re left in a binomial “Average is Over” economy – where the only middle class jobs are in protected areas (government, healthcare, education). I hear lots of complaining, but every potential solution gets shouted down by the economists. Are we just supposed to unwind until our wages and standard of living normalize with the world? Is there any way to stop that?

And explain this to me (I’m not in Ray Lopez’ class – I’m just a regular 100 IQ person) – a Walmart employee working 40 hours per week would still fall under the poverty line. Therefore, the taxpayer has to step in and support this worker (subsidized housing, Medicaid, etc.). Why is a business allowed to operate if it depends on the taxpayer to subsidize its operations? I guess all businesses depended on government (e.g. roads, police, etc.) but it seems wacky that WalMart and McDonalds employ something like 2 million people and all non corporate employees qualify for public assistance. Their business model doesn’t seem viable to me.

Ryan Vann October 14, 2013 at 6:05 pm

Walmart’s corporate earnings statements would indicate they are viable by about a 5% profit margin.

Moreover the subsidy system is in place whether or not Walmart exists. In other words, Walmart isn’t a recipient of the subsidies you speak of, Walmart employees are.

Abelard Lindsey October 14, 2013 at 4:02 pm

High minimum wages could be a driver for improved automation and robotics technology.

Billionaires for a Higher Minimum Wage October 14, 2013 at 4:31 pm

For what it’s worth, some of the billionaires support a higher minimum wage – I guess they don’t know much about economics:

http://www.cnbc.com/id/101106978

“Mike Novogratz, a billionaire executive at hedge fund Fortress Investment Group, recently suggested in Fortune that government should help people find work.

“We have a whole lost generation. It’s not unlike the hobos during the depression era. These men never got jobs; never got married; never have a reason to build a nest egg,” Novogratz said in reference to the chronically unemployed.

“That’s the really scary and depressing thing. The best way to spur employment is to get the business community to believe you’re on their side. It’s why blaming is such bad policy. We need to unleash the pent-up capital and creativity.”

Novogratz also recommended companies pay more, partially through a higher minimum wage, and hinted that the government should raise tax rates on the wealthy.”

Ed October 14, 2013 at 10:19 pm

While I disagree with this high minimum wage, it might “succeed,” in that airport employers are probably able to pass the increased costs onto consumers and keep their workers. And sounds like their isn’t that much employment outside the airport. I do predict a lot of shenanigans around the margins – there is an exception for “small” employers with less than ten workers, I believe. What do you bet there’s going to be a lot of small employers opening up shop.

If this wins it will give fodder to the folks who want to raise the minimum wage in other places. Heck, why stop at $15 an hour, if that’s a good wage, why not legislate a great wage, like $25 and hour or even $50 an hour.

Carolus October 15, 2013 at 11:05 am

Why are prices for consumer goods and services typically much higher at airports than outside? Obviously, a captive audience waiting for flights is the key, creating easily capturable rents for someone. For whom? Not necessarily the vendor, I think. While not having access to the data, I’d lay a good bet that the airport authorities capture a good share of the consumer surplus by charging higher prices for retail space in the terminals. On the margin, you’d expect retailers in all activities inside the terminal to make no more than normal industry profit rates. So, the airport authority gets most/all of the rents from income on vendor space.
Now, see what happens when Seatac raises minimum wages. I’d expect a loud outcry from vendors, with a forced renegotiation of rental prices for space in the terminals.
Thus, I say, much of the increased vendor cost due to higher min wages — perhaps even all of it — will have to be absorbed by the airport authority. Since the airport is funded by airline fees and local tax payers, that’s where you will see the incidence. In other words, I’d predict no or small effect on employment and consumer prices in the airport, but considerable changes in the price of retail space, and then possibly some adjustment in airline landing fees and/or tax subsidies from the local community.

Asher October 15, 2013 at 7:51 pm

Yeah, like raising the minimum wage is going to assist the middleclass. Are these people smoking meth?

Floccina October 16, 2013 at 3:08 pm

for many businesses in SeaTac
If it is important enough to mandate by law, why not for all businesses?

Floccina October 16, 2013 at 3:15 pm

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