Mayor Murray’s Minimum Wage Proposal in a Nutshell: $15 in 2017 Dollars, by 2025

Okay, so I’ve finally had a chance to wrap my mind around Mayor Ed Murray’s minimum wage proposal, and found it to be both a little bit better and a tiny bit worse than it first appeared. The good news is that it would indeed get all workers to a $15 minimum wage in 2017 dollars—that’s about 50 cents an hour less than the wage would have been had we bumped it up to $15 now on January 1, 2015. The bad news is that some workers won’t reach this real-dollar-equivalent wage until 2025—a ten year phase-in, not the seven-year phase-in that has been touted.

Also good news is that the employee count for “big” businesses—defined as greater than 500 FTEs—refers to the number of employees nationally, not locally, and lumps franchise employees together with those at other franchises throughout a national chain. That’s great news for fast food workers for example, most of whom receive no tips or benefits, and thus would be phased in under Schedule A: $11 an hour in 2015, $13 an hour in 2016, and $15 an hour in 2017, inflation indexed after that. “The people who had the courage to walk out on strike got a pretty good deal,” SEIU 775 president and committee co-chair David Rolf told me by phone, referring to last year’s fast food strikes.

And if everybody was getting that deal, I’d be thrilled. But they’re not.

Big business employees who receive health care benefits (Schedule B) wouldn’t reach an equivalent wage until 2019. Workers at “small” businesses (defined as 500 or fewer FTEs) who receive no health care benefits or tips (Schedule C) wouldn’t reach an equivalent wage until 2021. And small business employees who receive tips and/or health benefits (Schedule D) would not reach that inflation-adjusted 2017-era $15 minimum wage until 2025, a full decade after the proposed ordinance first goes into effect.

The mayor’s office has provided a nifty table detailing the full 10-year phase-in for all four schedules. But it’s kind of misleading. The way it works is that the straight-up hourly wage to which all four schedules eventually merge is based on Schedule A’s $15 an hour wage in 2017, adjusted annually for inflation. But the annual increases under Schedule A all presume a 2.4 percent annual inflation rate—substantially higher than most experts are predicting. Inflation has held steady at about 1.5 percent these past couple years, while the Federal Reserve Bank of Cleveland just two weeks ago forecast a 10-year average CPI of 1.87 percent. The proposal’s 2.4 percent estimate may be closer to the historical average but it is totally divorced from our current economic reality.

Minimum Wage Schedule

I’m not a gambling man, but I’d wager that this proposal would bring Seattle’s minimum wage closer to $17 in 2025 than it would to $18.13. So don’t take the numbers between the highlighted rows too seriously. They’re just estimates. Overly optimistic estimates.

The important numbers are $15 in 2017 dollars (about $14.50 in 2015 dollars) and the year in which the figure in each column first matches that in Column A: 2017, 2019, 2021, and 2025 respectively. That is what is meaningful to workers in terms of their inflation-adjusted take-home pay.

As for the meaning of Schedules C and D, well, it depends on how you choose to look at it. Schedule D is the absolute minimum wage a small business may pay its workers (again, estimated from 2022 on) as the state currently defines wage. But Schedule C is the minimum total compensation a small business employee must receive, including wages, tips, and health benefits.

Rubin2

A charitable spin on minimum compensation uses Schedule D as the baseline, and views Schedule C as guaranteeing that small business workers receive total compensation a little above that guaranteed in the base minimum wage. A negative spin on minimum compensation uses Schedule C as the baseline, and views the difference between the two columns in any given year as an unwarranted deduction the employer gets to take against his minimum wage obligation. It’s like that classic optical illusion: Is it a vase or is it two faces?

So that’s what the mayor’s compromise proposal does. Many, many workers—those who earn no benefits working at big businesses—would reach $15 an hour by 2017, and receive cost-of-living increases thereafter. The remaining workers will be phased in to an inflation adjusted equivalent minimum wage by 2019, 2021, and 2025 respectively. Once this 10-year phase in is complete there would be no tip penalty and no benefit deductions.

Tomorrow I’ll consider the political ramifications, and whether they conspire to make this 10-year phase-in a good enough deal.

Comments

  1. 2

    Andrew Smith spews:

    Assuming the CPI is accurate (which is a different question) it doesn’t matter whether the CPI is 1.5% or 2.5% or 10%, inflation is going to eat away whatever increase there is.

    Plus, it shows a huge lack of understanding of basic macroeconomics to say higher inflation estimates are “overly optimistic” compared to lower ones.

  2. 3

    Roger Rabbit spews:

    It’s unworkable for the simple reason that different employers will have different minimum wages. Why take a minimum-wage job at a local restaurant if you can get a higher minimum wage at McDonalds or Taco Bell? This will suck workers out of local businesses.

    Has there ever been, anywhere in the United States, a minimum wage law that set different wage rates for different businesses? It will be chaotic.

    I also wonder whether this multi-rate structure would be more vulnerable to legal challenges by big businesses.

    There should be a single minimum wage for every business and every worker. Opponents will use the sheer complexity of this proposal as an argument to persuade voters to defeat it.

  3. 4

    Roger Rabbit spews:

    I wonder if the business negotiators intentionally tried to make it complicated to make it easier to kill it in court? And a gullible Mayor Murray played into their hands? I don’t see how Labor could possibly like this from any angle.

  4. 5

    Jack spews:

    2,

    Yeah, and current Fed policy is to have a constant 0 to 2 percent inflation over the long term. So, a working stiff will lose about half of his purchasing power over his working career. What’s a working stiff gonna do?

  5. 6

    Roger Rabbit spews:

    @5 “What’s a working stiff gonna do?”

    Drop your drawers, bend over, bare your cheeks, and take it like a man.

  6. 8

    Mirror spews:

    @4 I think your intentionality hypothesis hits the nail on the head. The idea is to make anything done in Seattle look like a “liberal””socialist” regulatory nightmare. I note too that Murray his been using a lot of right wing buzz words in his speeches that sound fishy too me, “class warfare”, “Saul Alinsky”, etc. I can’t help but think the guy is a willing tool.

  7. 9

    Roger Rabbit spews:

    @8 He seems to have completely changed since becoming mayor. The tipoff was when he appointed a former Police Guild leader as interim police chief and looked the other way as that guy immediately began reversing disciplinary actions against misbehaving cops. It’s been downhill since. Murray is wearing out his welcome in liberal Seattle in record time.

  8. 10

    Roger Rabbit spews:

    The labor activists should go ahead with their “15Now” initiative. They’re being co-opted. The mayor’s plan is designed to fail. Its function is to displace the initiative, and then get voted down, so nothing will be enacted.

  9. 12

    spews:

    I’m confused about some of the analysis & some of the comments as I try to understand all this. Please educate me.

    #1: Doesn’t this proposal amount to a huge advance over the status quo & the most progressive policy in the whole country? If so, why do so many hate & dismiss it?

    #2: Isn’t the proposal indexed to inflation? If so, why does it matter whether inflation is 1% or 100%? Don’t wages automatically keep up with whatever the cost of living is? If min wage 40 years ago had been indexed to inflation, wouldn’t it be substantially higher than it is now?

  10. 13

    don spews:

    @3

    But as Goldy pointed out in a previous article (about Ford’s $5 day pay rate), if McDonald’s is paying $15 per hour and Dick’s is paying $13.50, Dick’s would have to up their wages to attract workers. So I would think that the benefit of the large chains paying more first is to get the others to follow suit.

  11. 14

    don spews:

    @10

    I don’t think the fall initiative is going to pass. Sawant keeps quoting to a poll claiming 70% of the citizens want a $15/hour minimum wage. Polling doesn’t work that way, especially six months out. There is no way their initiative will get a 70% yes vote, if it passes, it will pass by a very slim majority. If the initiative fails, there is no way you’ll get the same deal from the business community that was proposed yesterday.

  12. 15

    phil spews:

    @14

    The council will make the law. This is only one group’s opinion about what should be done. Yes the mayor supports it, but it was his advisory group and he doesn’t want to look like a complete tool…

    @8 & 9 (which he is and we told you he would be).

  13. 16

    Andrew Smith spews:

    @7
    I have a phd in econ from stanford so one of us is wrong. A little inflation may be good, but it has nothing to do with this proposal. Higher inflation doesn’t help the wage in either direction if it’s indexed to inflation.

    @12 you are exactly right on both points. I am just nit-picking goldy’s nonsense.

  14. 17

    Cascadian spews:

    Goldy, here’s what I see as the step forward. Use the Mayor’s proposal as a baseline, but change the indexing formula on the other side so that it outpaces inflation until the $15 in 2014 threshold is met. For example, adjust wages by CPI+1%.

    You could even extend that indexing further, so that you were actually indexing to a realistic livability threshold (say median rent and utilities on a one-bedroom apartment, plus median grocery costs, plus 10% to allow for savings). At the end you’d hit more than $15/hour. Less upfront for more in the long run. That’s a fair deal.

  15. 18

    Roger Rabbit spews:

    @13 If you want employers to pay $15, why not simply require all employers to pay $15, instead of screwing around by requiring some to pay $15 on the hope that will force others to pay more?

    Besides, it won’t work. Boeing’s relatively high wages for machinists and assemblers have not pulled up the wages of machinists and assemblers working for other companies (including Boeing subcontractors).

    The likelihood is that if McDonalds paid $15 and Dick’s paid $13.50, Dick’s would keep their wage rate at $13.50 and hire the workers who couldn’t get jobs at McDonalds.

    And in this scenario, McDonalds wouldn’t necessarily get better workers than Dick’s. That assumes the companies’ hiring processes would sort job applicants by desirability with perfect efficiency, but in fact neither company would be able to distinguish between “better” and “good” when evaluating job applicants with any consistency. McDonalds and Dick’s would both end up with a mix of “better” and “good” employees.

  16. 19

    Cascadian spews:

    Actually, a better index would be tied to inflation + increase in per capita GDP. That would guarantee that minimum wage workers would also gain relative to increases in productivity. A big part of what’s driving inequality in this country is that the investor class and the top incomes are receiving most of the results of productivity improvements. You’d never have to phase it out, and future wage increases would outpace inflation, meaning that low-income workers could start gaining traction over time and actually see increased standard of living. Those benefits would cascade up the income ladder.

    In some ways, $15/hour is aiming too low.

  17. 20

    Roger Rabbit spews:

    @19 “the investor class and the top incomes are receiving most of the results of productivity improvements”

    That’s not correct. They’re taking all of the productivity gains. Real wages have gone nowhere since 1970.

  18. 21

    Roger Rabbit spews:

    Of course, that’s an argument for being an investor instead of a worker, like me. Exxon and Chevron both raised their dividends yesterday. Exxon shareholders got a 9.5% raise and Chevron shareholders got a 7% raise. I made $547.99 in the stock market today: $213.24 capital gains and $334.75 dividends. That’s equal to a job paying $68.75 an hour — without showing up for work! Work sucks. Capitalists get all the money and sit all day on their fat asses. I used to work, but now I’m a capitalist, and it’s a lot more fun!

  19. 22

    Sam spews:

    The CPI estimate comes from the City of Seattle’s Urban CPI – estimated to increase at a rate of 2.4% over the next three years.