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Seattle minimum-wage fight: Does $15 an hour make economic sense?

Economy, Business and FinancePersonal IncomeLaws and LegislationSeattle
Seattle is poised to vote on what would be the highest municipal minimum wage in the country
Nick Hanauer: The 20 or 30 biggest cities in America should all raise their minimum wage to around $15

The Seattle City Council is poised to raise the municipal minimum wage Monday to $15 an hour, making it the highest in the country. That number grabbed the imagination of this progressive, affluent city and became central to the November elections, which swept the first Socialist into office here in a century.

Not surprisingly, Washington also has the highest state minimum wage in the country at $9.32, although several other states, California included, are considering giving their lowest paid workers a boost. The federal minimum of $7.25 is under heated discussion, although it won’t jump any time soon.

One of the architects of the $15 minimum is multimillionaire Nick Hanauer, who, along with author Eric Liu, coined the term “middle out” economics. That philosophy, which President Obama harnessed in his reelection campaign, posits that a healthy middle class means a healthy economy.

We talked to Hanauer just days before the Seattle vote.

Why $15?

To be clear, just because you believe raising the minimum wage will help the economy, it does not also mean the higher it goes the better it will be. Fifteen dollars is more or less between the $10.54 it would have been if it had tracked inflation nationally and the $21.70 it would be if it had tracked productivity gains nationally.

Fifteen dollars is a very conservative number that we know for certain the economy can support. And additionally, Seattle, Wash., is a very prosperous and very expensive city to live in. So $15 is a good solid number for a place like this, but probably is too much for a small town in Arkansas where living costs are much, much, much lower.

Given that analysis, what other cities should have this $15 minimum wage?

The top 20 or 30 big cities: Seattle and San Francisco, and Portland, [Ore.] and Los Angeles and San Diego and Chicago and Washington, D.C., and Boston. To be clear, it would be dishonest to say we are certain that $15 is the perfect number. Sixteen dollars could be better, or $20 or $14. But $15 is a good start.

Then why did you pick $15?

I picked the number because I knew that the city and national fight over raising the minimum wage is part of a broader effort to reframe how people explain where prosperity comes from in capitalist economies. That effort we call the “middle-out” framework.

Middle-out economics simply is an alternative explanation…. It’s a rejection of the trickle-down idea that the richer the rich get, the better off the economy will be. And equally, the richer the poor get, the worse it it will be for the economy. Trickle-down is both of those things.

Why doesn’t trickle-down work?

It’s not rooted in reality. Rich people don’t generate growth. It’s a fundamental law – when people have more money, businesses make more money and have need for employees.

The truth is that jobs are created by a feedback loop between mostly middle-class consumers and business, and that’s why a thriving middle class is the source of prosperity. It’s not the consequence of prosperity. That’s why a policy focus on the middle class, like raising minimum wages, is the thing that creates growth and prosperity in capitalist societies.

What do you say to those who argue that raising the minimum wage is a job killer?

For as long as there’s been capitalism, back 200 years, every time a community has attempted to do something to improve the condition or wages of workers, capitalists have said the same thing in exactly the same way: “We’ll go out of business. We’ll have to lay off people, it’ll be terrible for the economy.”

In every single one of those cases, not only didn’t the sky fall, but things got better. We capitalists love our customers to be rich, but our employees to be poor.… You show me a low-wage country, and I’ll show you a hell hole.

Give me an example of where a high minimum wage has not hurt the economy.

In Australia, the minimum wage is $17, and unemployment is half of ours…. And they have McDonald’s, too. Most people think that this $15 thing in Seattle is some insane, risky policy departure. That we’re putting our entire economy at risk. You have to remember what few people see – we’ere already paying wildly higher wages than other places -- $9.32.

In most states there’s something called the tip credit. If you work in another state, and you’re a tipped worker, your base minimum is $2.13 plus tips. In Washington state you earn $9.32 plus tips, a 437% difference.

You were on Mayor Ed Murray’s advisory committee that came up with the ordinance for a $15 minimum. What were the biggest sticking points among the various business and labor interests?

How much? How fast? Who? And when? Everything was a sticking point. On the far left you had “$15 now for everyone tomorrow.” On the right you had “nothing for anybody ever.”

In what I consider to be a miracle of civic cooperation and health, we compromised in a very, very good place, which will be fantastic for our economy and accommodate everybody in a very elegant way.

The final ordinance that came out of committee changed the proposal in two significant ways. It includes a lower minimum for teen workers and pushes back the start date from January to April. Were those mistakes?

I’m of two minds on the teen wage. I don’t want to give companies incentives to play around with a training wage. But I don’t want to create an incentive for young people to drop out of school and get a job. There are arguments for and against. I would have implemented the law on Jan. 1. [The changes were] not what I would have done, but it’s not the end of the world.

You’re a rich guy. How did you come to this position?

Anyone who takes an objective look at how capitalist economics work will come to generally the same conclusion. If workers don’t have any money, we’re out of business. There are many wealthy people who somehow magically believe that the richer they get, it will all work out. There are no examples of that in the world. For me, I’m a very successful entrepreneur and venture capitalist. But I’m nothing without a thriving middle class.

What’s the next city where you think the minimum wage will be raised?

I met with [New York] Mayor Bill De Blasio a couple weeks ago. They’re enthused, but they have no authority to raise wages. There’s a move afoot in Los Angeles, San Francisco, Chicago. There are 26 state- or city- based efforts to raise the minimum wage around the country. I think that the country will explode in the next six months to a year.

Copyright © 2014, Los Angeles Times
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