Citizens in SeaTac, Washington recently voted to raise the minimum wage to $15 per hour for jobs closely related to airport activities. Proponents of the measure hope that by raising the minimum wage, increasing levels of poverty in this suburb of Seattle will be held at bay.
In a blog post for Brookings, Alan Berube concludes that such measures have some positive impact on combating poverty. According to Mr. Berube:
“Most research on the effects of these laws has studied cities where living wages were implemented, and finds that such laws modestly reduce poverty. The Seattle Times profiled the effects of an ordinance similar to SeaTac’s focused on airport jobs in Long Beach, CA, and found generally positive impacts, though perhaps not as positive as advocates might have hoped.”
Mr. Berube goes further to point out that suburban poverty is not about poor people from urban areas moving into suburban areas, but about the economic changes faced by suburban areas. Specifically, Mr. Berube notes that:
“As so many jobs today are located in suburbs, especially lower-wage sectors like retail and hospitality, suburban residents are increasingly likely to experience working poverty. So it stands to reason that measures to boost their wages, like minimum wage and living wage campaigns, could be important tools for addressing the economic hardships facing suburban workers and communities.”
In the short term I would expect other prices in the community to rise as workers, already exhibiting higher propensities to consume, catch up on lost opportunities to buy. Local government should benefit from increased sales and property tax collections which may make SeaTac look better to municipal bond investors. This increase in tax revenues and spending may be short-lived for two reasons.
First, employers may use technology in order to replace workers. The irony is that purchase of additional capital usually came with an increase in the number of workers needed to work with additional capital. This may not be the case as employers purchase technology designed to make work activity more efficient and cost-effective.
Second, the additional income experienced by these workers may create a demand for savings and investment. Workers may decide that avoiding the negative consequences of the last recession may best be addressed by increasing the level of savings; creating rainy day funds such that current spending is put off in order to ensure future spending during a downturn. Tax collections may level off and risk premiums on municipal bonds may increase as a result.
In short, the political risk created by SeaTac’s voters is real, but may occur further down the road as short term increases in spending work to mitigate risk.