Seattle’s minimum wage debate: Are we leaping before we look?

By the end of the day on Monday, June 2, we will know the outcome of the Seattle City Council’s vote on the fast-moving proposal to raise the minimum wage to $15 per hour in Seattle. But there will remain a lot that we do not know.

Side note: For readers not from the Pacific Northwest, and thus not mired in this news, the issue is this in a nutshell. Fueled by a City of Sea Tac ballot measure in November 2013 and the addition of a Socialist Seattle City Council member who ran on a platform of a $15 minimum wage now, the movement to raise the minimum wage has advanced very quickly. A 24-person panel of business, non-profit, and labor leaders has forwarded a proposal to the mayor and City Council that involves raising the Seattle minimum wage to $15 over three to seven years, depending on business size. The debate has become very heated and polarizing, with very few people in the middle.

I joined a number of local business leaders for a breakfast on May 29th, where we heard from a member of the committee that formulated the current approach and had a lively table conversation with others.  Based on that breakfast, I came away with many more questions than answers.

Because this matter has advanced so quickly, most organizations haven’t had the opportunity to think through the implications. These are but a few of the questions business executives should be asking and working through quickly over the next few months in order to prepare for what looks like an inevitable beginning to the increase in April 2015.

What is the most likely financial impact to businesses?  We don’t know. No one has done the financial analysis to understand how this change will affect the business climate in Seattle.  More specifically, while we may be able to evaluate the direct payroll impact on businesses with heavy minimum wage workforces, what will the secondary impact be for those businesses in Seattle but without the minimum wage employees?  One side argues that this will put more money in the economy and that the proverbial rising tide will float all boats. The other side argues that companies will have to raise prices to pay extra compensation—so the economic impact will at the very least be negligible or will more likely than not be negative.  Surely we can’t state that the additional minimum wage will result in layoffs, but to assume it can simply be absorbed is also shortsighted.  Furthermore, to argue that businesses without minimum wage resources won’t be impacted by changes in their supply chain relationships or other non-direct costs is naïve, but the extent to which their business will need to change is unknown. We just don’t know.

How will companies react to compensate for the impact on margins?  For one, there will be a renewed mandate to improve efficiency.   Many companies with employees making less than $15 per hour already operate with thin margins and have endured years of cost cutting, so this may be easier said than done.  Some will need to (or choose to) do more with fewer employees.  All will need to reconsider how they optimize employee value and ensure time spent at work is as efficient as possible.

How will exclusion of tips once the minimum wage reaches $15 affect profitability, processes, and business models?   Because of how quickly this process has unfolded, no one has spent the time to think this through.  Hospitality-industry businesses may need to transform their business models to account for the change.  For example, more hotels and restaurants may consider a model that includes a blanket charge with meals and removes tips to maintain compliance with the minimum wage requirements.  Is this good for those in the restaurant industry who earn tips today?  For some, I’m sure making $15 an hour is a positive change. For others, elimination of tips almost certainly would be a significant step back.

Will businesses ultimately have to resort to moving from the area as a result?  Very few would argue that this change will not result in some level of price increase in certain industries or spaces.  And it will be challenging if not impossible to justify the increase simply on the basis of, “…because we happen to reside in Seattle.”  Said differently, an organization that sells nationally can’t raise prices to 49 other states and Eastern Washington just because it is required to pay Seattle employees more—that simply isn’t a sustainable model.  Organizations will need to begin thinking about how to deliver this message to customers while simultaneously transforming customers’ experience in ways that provides something new or more powerful, or they will risk losing customers.  More importantly, the change could prompt some businesses to reconsider their choice of location and to move jobs away from the area.

How will the compression of compensation impact those making around $15 per hour now?  In many organizations with workforces that are around the current minimum wage, supervisors make closer to $15 per hour.  With the increase in minimum wage to $15 per hour, what happens to those supervisors?  You can’t simply raise the pay rate for entry-level employees and leave the supervisors at current pay rates, so the impact will be felt more broadly.  Of course, this means an even greater financial impact on businesses and some inevitable questions from those in supervisory positions. Have companies thought about this change?

Regardless of the outcome on Monday, the story and the debate will be far from over—in Seattle and beyond. This particular movement is just one facet of a fundamental change—the evolving American workforce—that will compel companies to transform way they do business and the way they view customer experience. Based on the speed of this initiative, it is wise to be looking ahead…and to be doing so very quickly.

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