Press "Enter" to skip to content

Inequality and Minimum Wage – Seattle

CaptureA new Brookings Institute study has come out stating that incoming inequality continues to be a major issue especially in the 50 largest US cities. Across the 50 largest cities it was found that households in the 95th percentile earned 11.6 times what households in the 20th percentile earned. This is in comparison to the national average of a 9.3 gap.

At the center of this debate is minimum wage. While some cities have gone ahead and raised minimum wage, Seattle plans to have theirs to $15/hour by 2017, other cities have not made such a bold jump. With Seattle’s pledge I wonder what their job market will look like in the next few years? I assume there may be an excess of demand for minimum wages jobs. Interestingly enough, despite the rise in the minimum wage in Seattle they are the number one city with significant increases in the 95th percentile incomes. Seattle increased by 14.9% between 2012 and 2013 which accounts to about a $36,000 increase. It makes sense that a growing economy in the higher income sector, should be able to grow in all areas. With Seattle the technology hub that it is, the multiplier is usually around 5; for every one job created in the innovation sectors means about 5 additional jobs in the service industry. However, we still do not see evidence that rising incomes at the top will trickle down to the bottom. It will however, be interesting to see how and/or if the gap starts to close between the top earners and bottom earners in Seattle. 


  1. oliver2 oliver2

    I think that Seattle is taking a good step by raising their minimum wage think it would provide a very interesting case study to see the economic and social effects of the wage increase; to see if some businesses move out, to see if rates of exit behavior decline, and even to see if not much changes.

  2. klinedinstc15 klinedinstc15

    I think that the minimum wage increase will probably make it difficult on business that have low profit margins — for example, restaurants.

    • This is micro reasoning. Here we need to put on our macro hats.

      If the minimum wage increases, restaurants in particular will face competitors for whom the minimum wage has also risen, since they don’t face import competition from other parts of the country where the minimum wages has not changed. Since wages are only one component of costs, an increase of (say) 50% will result in an increase in costs by a much smaller amount, maybe 10%-15%? If a restaurant raises its prices by that amount while rivals do not, it will certainly have an impact on their business, but what we need to know is the price elasticity for the fast food market as a whole. My guess is that is quite modest, and so the net effect could be a small drop in demand offset by a large boost to wages and thus local income. That would further mute the impact of any price hike on demand. Previous minimum wage studies also showed that higher wages, something closer to a “living” wage that provides enough income to sustain a basic American lifestyle, reduce turnover. That in turn enhances productivity, and so likewise offsets part of the impact of the wage increase.

      Note that I assume Seattle’s minimum wage is above the national average, de facto if not de jure</em). So while relative to Lexington they're proposing a doubling of wages, that is surely not the case there.

      • I found a paper – or rather a post on a blog I follow – that sets forth the data, which shows very small industry-level elasticities of demand (0.1 if not smaller). So the impact on total demand would be quite small, maybe too small for any single restaurant to observe a change in their mean sales relative to the variance of their sales.

  3. klinedinstc15 klinedinstc15

    Also, regarding the WSJ article posted, I am curious as to why Atlanta has the largest income inequality. Anyone have ideas on why this might be the case?

  4. sandersm15 sandersm15

    I am somewhat familiar with Atlanta’s inequality demographic but I would not consider myself an expert on the subject. Atlanta has an interesting dynamic in terms of income inequality. Metro Atlanta has become one of the largest metro areas in the country and has continued to boom economically with most of the new development coming on the perimeter of the city and moving outwards. This has caused essentially a “migration” of middle class Atlantans to move out of the main metro Atlanta area. Like much of the south, Atlanta still suffers from many poverty issues created out of segregation and the decline in manufacturing and low-skill jobs. Together, these factors make Atlanta, with its internationally competitive businesses located right next to high levels of poverty, a city that is very prone to income inequality.

  5. winn winn

    Is it possible that increasing Seattle’s minimum wage would increase the city’s productivity? As the opportunity cost of losing one’s job increases (in other words, the wages increase), employees will be less likely to slack off while at work. This would also lower job turnover, which would help cut business costs and help the economy in the long run.

    • I think the “micro” labor market story isn’t one of workers slacking off, rather that the wage is very close to the reservation wage. Childcare, car maintenance and so on are all very, very hard to cover on a minimum wage. You also (pre-ACA) couldn’t afford to visit a doctor. So the slightest little hiccup leads to missed work. Yes, workers do get fired. But also people quit all the time, or simply don’t show up for work / have a high rate of absenteeism — the difference between zero income and the net from earning minimum wage less gas costs and the like is small, and it makes sense to take time off work to search out a cheapo car repair place that may eat up a day, or to take care of a child if there’s some disruption to normal arrangements (e.g., grandpa has a cold).

      If any of you have worked a fast food or similar job, chime in!

  6. grieve grieve

    I worked in Seattle last summer, and I was impressed by the construction that was going on. They have completely transformed a formerly dilapidated and run down part of their city (lake union) into a hub where new restaurants and shops were popping up every other day while I was there. This, combined with their plans to build a new tunnel through the city, will certainly lead to significant job creation.

Comments are closed.