Tuesday, March 17, 2015

Seattle’s New Minimum Wage Takes Effect April 1 But is Already Leading to Restaurant Closings and Job Losses

By Paul Guppy

As the implementation date for Seattle’s strict $15 per hour minimum wage law approaches, the city is experiencing a rising trend in restaurant closures.  The tough new law goes into effect April 1st.

The closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.

The shut-downs have idled dozens of low-wage workers, the very people advocates say the wage law is supposed to help.  Instead of delivering the promised “living wage” of $15 an hour, economic realities created by the new law have dropped the hourly wage for these workers to zero.

Restaurants close for many reasons, but Seattle has an added a unique factor.  Seattle Magazine reports, “...another major factor affecting restaurant futures in our city is the impending minimum wage hike to $15 per hour.”  About 36% of restaurant earnings go to paying labor costs.

Advocates of a high minimum wage said businesses would simply pay the mandated wage out of profits, raising earnings for workers.  Restaurants operate on thin margins, though, with average profits of 4% or less, and the business is highly competitive.

When prices rise consumers seek alternatives, a behavior economists call the “substitution effect,” which results in lower demand for the higher-priced product.  In the case of restaurants, consumers have access to the ultimate substitution – they can stay home.

The Seattle Times and Seattle Eater magazine have reported on some of the ways restaurant owners have tried to adapt – higher menu prices, cheaper, lower-quality ingredients, reduced opening times, and cutting work hours and firing workers.  Sometimes these strategies, even in combination, are not enough.  The business closes, workers lose their jobs and the neighborhood loses a prized amenity.

Restaurant owners seldom cite the minimum wage mandate directly as a reason for closing.  Restaurateurs are business people, not politicians, and angering the Mayor over the law he signed is not a smart business move.  A spokesman for the Washington Restaurant Association is more blunt, however.  “Every [restaurant] operator I’m talking to is in panic mode, trying to figure out what the new world will look like.”  He added, “Seattle is the first city in this thing and everyone’s watching, asking how is this going to change?”

Seattle is rightly famous for great neighborhood restaurants.  That won’t change.  What will change is that fewer people will be able to afford to dine out, and as a result there will be fewer great restaurants to enjoy.  People probably won’t notice when some restaurant workers lose their jobs, but as prices rise and some neighborhood businesses close, the quality of life in urban Seattle will become a little bit poorer.

The above originally appeared at the Washington Policy Center.  Paul Guppy iss currently Vice President for Research at the Center


  1. I hate the price controls. On the other hand, bring on the robots.

  2. Is this an elitist policy trying to drive low income type employees out of the city? But, if i'm unemployed in a nearby city that is at 7.25$, I may as well move to Seattle and take my chances, the result being an increase in pan-handling and homeless?

    This is actually going to be interesting to watch. If west coast cities & states want to experiment with socialism, let them. As long as other states & cities don't have to bail out failed governments.

  3. Yes, it is a policy of forcing out the poor. Low skilled workers won't find jobs because people that actually find jobs will have higher skillsets.


  4. Seattle is flooded with tech workers that Amazon, Apple, Google, eBay, Microsoft, Alibaba, Twitter, Oracle, SpaceX and many others are hiring like crazy. Prices will go up and will be absorbed by consumers without difficulty. That's the way it's going to be in Seattle. Other places are obviously going to be different.