Three years ago, Seattle voters chose to implement an incremental increase in minimum hourly wage up to $15 per hour. With a similar measure passing last November in Arizona (Prop. 206), business owners have been eagerly looking to Seattle to understand what the long term consequences of the state’s minimum wage increase might be. In this article, we take a look at the latest data to see exactly how the minimum wage increase in Seattle has impacted the city’s economy and what it might mean for Arizona’s economic outlook.
Seattle Minimum Wage Increase Overview
With the passage of a city ordinance, Seattle’s minimum wage began increasing in April of 2015 — then from $9.50 per hour to $11 and up to $15 per hour by 2017 for employers with 500 or more employees. For smaller businesses (those with fewer than 500 employees), the minimum wage rose to $10 per hour in April of 2015 and the $15 per hour minimum wage will not be realized until 2021. The actual net minimum wage paid is also further complicated by discounts on the required minimum wage based on other factors like whether or not employers contribute to their workers’ medical benefits.
The results of Seattle’s minimum wage increase
At the time it was passed, people at all points of the political spectrum began speculating as to what the effects of this minimum wage increase would be. And as recently as August of 2016 proponents of the minimum wage increase have been touting studies showing that the ordinance has had its intended effect of supporting low-wage workers by increasing their pay without reducing their overall rate of employment.
However, there has been much criticism of the methodology and the resulting conclusions of those studies. A more credible study was recently unveiled which has alarming implications for the impact of minimum wage increases. That study estimates that low-wage workers lost an average of $125 per month, due in large part to employers’ inability to afford the new minimum wage.
It should be pointed out that the precise implications likely vary across businesses and particular industries. At any rate, it is important that Arizona business owners remain aware of what effect a minimum wage increase will have on their business and how they can best fortify their company to be one of the ones that succeed through the continuing implementation of Prop. 206.
Prop. 206 minimum wage increase
Passed by voters in November, Prop. 206 provides requirements for paid sick leave in addition to an incremental minimum wage increase. As of the beginning of this year, the minimum wage in Arizona is not $10 per hour and will continue increasing until it reaches $12 per hour in 2020 — though tipped workers will still have a minimum wage that is $3 less than the overall minimum, provided it can be documented that their gratuities make up the difference. (Keep in mind that businesses in municipalities with their own city minimum wage requirements, like Seattle and like Flagstaff, are facing even higher standards for minimum wage.)
While Prop. 206 has been through multiple court battles, it seems for now that the rules are here to stay. Therefore, we have been advising all of our clients and colleagues to begin thinking in the long term about their strategies for accommodating the growing payroll costs. While it seems that some groups of employers will inevitably need to slash payrolls, put off new hiring, reduce hours or let their workers go, the good news is that Prop. 206’s minimum wage increase is not as drastic as Seattle’s, which may blunt some of the negative effects. And as mentioned earlier, the minimum wage increase will not impact all industries equally. While one-quarter’s’ worth of data is not enough to draw any long term conclusions about Prop. 206’s impact, the food industry has been doing well under the new minimum wage increase so far — a significant accomplishment because of the relatively high rate of hourly employees within that industry.
Furthermore, some strategically minded companies are finding that there are other ways that they can confront the minimum wage increase and keep their company’s teams intact.
Conducting thorough evaluations of all of the company’s operations and expenses can be a good first start. Analyzing revenue streams is another area of interest. Whether it is time for a price increase or to renegotiate a deal with a vendor, knowing all of your organization’s pertinent data is the first step toward coming up with a game plan. It can also be helpful to have an objective (though professional) third party to help you take a look at the numbers as well. Call us for a free consultation and let’s talk through the current state of your business and whether or not some of our services might be helpful to you as you begin to make plans to absorb the minimum wage increase and continue growing your business.