On the $15/Hour Minimum Wage: You Can’t Govern by Rhetoric Alone; Well, You Can, But You Shouldn’t

According to Seattle P-I reporter, Joel Connelly, Kshama Sawant’s speech at the January 12, 2014 Labor Temple rally for a $15/hour minimum wage included the following remarks here:

It is “the nature of capitalism to crush small business . . . capitalism overwhelmingly sets up small business for failure,” Sawant argued.  Addressing the argument that a $15 minimum wage shock might be too much for small business, she added:  “Small business should not be protected on the backs of workers.”

Ms. Sawant’s rhetorical exuberance suggests a “power pyramid” with big corporations at the apex, small business in the middle, and workers at the bottom.  Does it follow from this socio-economic understanding that the $15/hour minimum wage should be applied uniformly and without delay to all businesses, large and small alike?

I’m not sure, but here are a few things to consider. The first is that a $15/hour minimum wage in Seattle would have relatively little effect on the total labor costs of large corporations, which hire labor all over the world.  If a corporation’s Seattle operations accounted for 5% of its total labor cost, and 10% of its Seattle labor force were to get a 50% wage increase, then the corporation’s total labor costs would only increase by 0.25%. 

Now, consider small business.  If a small business is entirely local, then its “Seattle operations” account for 100% of its total labor costs.  And if 10% of its employees were to get a 50% wage increase, then this small business’s total labor costs would increase by 5% (20 times more than the corporation’s labor cost increase!).

Now, if for simplicity, we assume that labor accounts for 100% of all business costs, and that all businesses raise their prices in proportion to their increased labor costs, then the goods and services sold by big businesses subject to Seattle’s minimum wage would rise by 0.25%, while the prices charged by small businesses in Seattle would rise by 5%.  All else remaining the same, this increase in “small business prices” relative to “big business prices” would reduce the Seattle market share of small business and increase the Seattle market share of big business.  It’s hard to imagine that Ms. Sawant (or anyone else) would welcome this outcome.

There is, however, at least one countervailing consideration on the other side of the ledger, and it concerns the effect of increased spending that could result from a $15/hour minimum wage.  Since small businesses in Seattle get a much larger share of their total revenue from local sales than large corporations do, and since a substantial part of the increase in wages would be spent in Seattle, small businesses would enjoy a disproportionate share of this increase in sales revenue.

Where does all this leave us?  I’m not really sure, except to say that, when it comes to policymaking, the results of new legislation tend to be more appealing when you’ve thought things through in some detail.  And, on this score, I commend Councilmember Nick Licata for sharing the first of a series of issue papers on the minimum wage here.

Liberals & Socialists: Can’t We All Just Get Along?

Relations between Liberal and Socialist Parties are often difficult and their coalitions rare and fragile.  But sometimes the tensions seem artificial and unnecessary, or so I concluded after reading Salon’s interview of Mayor Ed Murray regarding his Executive Order to create a $15/hour minimum wage for City employees.

Salon Reporter: “The argument was made to me, by the newly elected socialist council member Kshama Sawant, that both you and your opponent were ‘very carefully avoiding’ the $15 issue until it was brought up by her campaign and by fast food workers. Do you think that’s a fair criticism?”

Mayor Murray’s Reply: “It is absolutely incorrect, and it’s really sad to see progressives questioning other progressives’ motivations . . . I have a history as a legislator working on issues related to the – related to poverty, related to civil rights.”  “When progressives are divided and questioning each other, we lose every single time.”

Reading this, my sympathies were mainly with the Mayor.  What’s to be gained by agitation following this impressive act?  Why not graciously delight in having moved the $15/hour goal significantly forward and gear up to push it further?

Well, it turns out that, on closer inspection, this is pretty much what our Socialist Councilmember did!  Here’s Ms. Sawant’s Official Statement on the matter:

“I am pleased to hear about Mayor Murray’s executive order to begin the process of making $15/hour the minimum wage for all city workers. This move towards $15 for an estimated 600 city employees is an important step in the right direction and a victory of the growing movement of low-wage workers. It starkly demonstrates the unprecedented political momentum for a $15/hour minimum wage for all of Seattle.

As an immediate step, I appeal to Mayor Murray to insist that the thousands of city subcontractor employees not covered by today's order also be raised to a minimum of $15.

But most importantly, the message to take away from today's announcement is how impactful grassroots movements can be, and how rapidly change can happen when working people rise up and make themselves heard. Workers, low-wage workers in particular, can play the decisive role in winning a $15/hour minimum wage for all of Seattle. This needs to be done by building an independent mass movement.

Yesterday, a new organization was launched called 15 Now to help carry this struggle forward. I appeal to those who want to join the movement to sign up at 15Now.org. All those who want to get involved should come to the 15 Now kickoff rally on Sunday January 12th at 2:30 pm at the Seattle Labor Temple.”

This statement seems just about right to me: “pleased to hear about the Mayor Murray’s Executive Order,” “I appeal to the Mayor” to take the next step, and we’re creating “a new organization . . . to help carry this struggle forward.”

I'd also hazard the guess that if Mayor Murray were responding to Ms. Sawant's Official Statement rather than to the provocative question posed by the Salon reporter, he would have been equally generous. 

                                           

Socialism in One City

Opening the Seattle Times this morning, I was surprised to see a photo of Seattle’s new Socialist Councilmember, Kshama Sawant, standing alongside the City’s new Mayor, Ed Murray, who was announcing the formation of a new Income Inequality Committee.  The Committee will consider minimum wage legislation, which Ms. Sawant would like to set at $15/hour, the level recently adopted through initiative by the City of SeaTac.

The paths leading to a more Egalitarian Seattle are cluttered with obstacles.  A former UW political scientist, Paul Peterson, insists that egalitarian initiatives, "redistribution" in Peterson's jargon, are pursued more effectively by countries than cities.  The title of Peterson’s book, “City Limits,” captures the main idea, which is that businesses and well-to-do residents aren’t trapped within the City’s boundaries; they can relocate to more “hospitable” jurisdictions, as Boeing is threatening to do.

In a more perfect world, minimum wages would be raised in concert nationwide (or worldwide), we’d have a more progressive tax code, and there would be better educational opportunities for less advantaged citizens.  But we don’t live in an ideal world, and so Seattle must seek out the next best alternatives.

There are some egalitarian policies Seattle can pursue without running up against the “city limits.”  Ms. Sawant isn’t the first Socialist elected to the Seattle City Council.  A hundred years ago, the Socialist Party was an active participant in the political battle to create Seattle City Light.  At the time, the existing electric utility was owned by a Boston syndicate and charged 20 cents/kWh.  When City Light started delivering power, it charged 8 cents/kWh, forcing its private competitor to reduce its rate to 8.5 cents/kWh. Now that's public power!

But I digress.  Today, Seattle has a chance to follow the excellent lead of B.C. Hydro, British Columbia’s publicly-owned electric utility.  B.C. Hydro charges its larger customers a carefully designed electric rate that doubles the financial incentive to conserve.  Each customer receives a block of low-cost power based on their past consumption, but pays a much higher rate for additional consumption.  In the long run, this electric rate alternative will reduce total energy costs, which are borne disproportionately by low-income households.  Perhaps our new Socialist Councilmember can nudge Seattle City Light in this progressive direction.

Here’s another question for Ms. Sawant: Do you approve of the City’s Retirement System's plan to triple its investment in Private Equity?  Thanks to the so-called “carried interest” tax loophole, Private Equity owners (remember Mitt Romney) pay a lower tax rate than most City Employees.  Seattle’s Liberal Councilmembers seem content to allow the City’s Private Equity holdings to be sharply increased, even though Private Equity lobbying groups are now pressuring Congress to maintain a tax loophole that benefits the highest echelons of the top 1%.  Surely a Socialist can’t support such investments!

Since I’m gathering up my holiday spirit, let me express the hope that our new Socialist Councilmember will bring the Liberal members of the City Council to their senses on these issues.  More efficient and environmentally-friendly utility pricing used to be a Liberal battle cry in Seattle, and the argument that it won’t work, or will drive business away, holds no water in light of B.C. Hydro’s success.  And if our Liberal Councilmembers can’t be persuaded to halt the City’s indirect support of Private Equity’s “carried interest” tax break, then perhaps their new Socialist comrade will occasionally remind them about the City’s $20 million investment in a Cayman Islands private equity firm, which is now worthless.

Note: This is my first post on this new blog.  Shortly I'll write a general introductory post about the point of "Socialism in Seattle."  Suggestions welcome.