Three Out of Four Economists Recommend Raising the Minimum Wage! a Closer Look at the Debate Surrounding Seattle's Minimum Wage Ordinance
| Publication year | 2015 |
CONTENTS
INTRODUCTION ..................................................................................... 594
I. DEBATING THE HARMS OF A MINIMUM WAGE ................................. 596
II. SEATTLE'S GRAND EXPERIMENT: THE LAW AND THE CONTROVERSY .............................................................................................................. 605
III. FRANCHISES .................................................................................... 611
IV. AN ASSESSMENT OF THE EFFECTS OF THE MINIMUM WAGE AND A CRITIQUE OF ARGUMENTS .................................................................... 614
CONCLUSION ......................................................................................... 617
INTRODUCTION
Minimum wage laws in the United States had a rocky start at the beginning of the twentieth century.(fn1) States were the first to enact these laws, which were met with a series of constitutional challenges under the Fifth Amendment.(fn2) Initially, the U.S. Supreme Court consistently struck down minimum wage laws as impinging on freedom of contract.(fn3) It wasn't until 1937 that the Court reversed these rulings, determining that freedom of contract was not in fact protected by the Constitution.(fn4) The next year, Congress adopted a national minimum wage standard by passing the Fair Labor Standards Act.(fn5) Ever since, all fifty states have been bound to enforce, at a minimum, the federal minimum wage standard.(fn6)
As of early 2015, the federal minimum wage was $7.25 per hour,(fn7) but twenty-nine states, and Washington D.C., have enacted statutes setting the minimum wage higher than this required minimum standard.(fn8) Washington State's minimum wage of $9.47 per hour is currently the highest of any state in the nation.(fn9) Current trends show cities enacting local ordinances establishing a city-wide minimum wage.(fn10) The Seattle City Council, by a unanimous vote in June 2014, enacted an ordinance implementing a plan to gradually increase the city minimum wage to $15 per hour,(fn11) an increase of over 60%.(fn12) The Minimum Wage Ordinance (Seattle Ordinance) went into effect April 1, 2015.(fn13) Almost as soon as the legislation was passed, there was backlash(fn14) from a group of local independent businesses and the International Franchise Association (IFA), leading to the IFA filing a lawsuit objecting to the implementation schedule.(fn15)
This Note will discuss the implications of a high minimum wage by examining the debate around the Seattle Ordinance with a particular focus on the IFA lawsuit. To analyze the possible impacts of the Seattle Ordinance, current and historical arguments both in support of and in opposition to minimum wage laws are considered. This Note ultimately concludes that the U.S. District Court rightly denied the IFA's motion for a preliminary injunction, which would have frustrated Seattle's experiment before it began.(fn16) Seattle's plan to implement a $15 minimum wage, and similar experiments, should be permitted to proceed because the problem of income inequality is sufficiently troubling, and attempts to find a solution must be afforded some latitude.
This Note also acknowledges, however, that there are dangers to raising the minimum wage. Opponents of the minimum wage increase suggest that possible consequences include job loss and failed business-es.(fn17) Thus, Part I of this Note provides an overview of the historic controversy over minimum wage laws, taking into consideration concerns about employment, economic impact, and social justice.
Part II explains the new Seattle Ordinance and discusses some of the arguments specific to this Ordinance and the IFA lawsuit. Part III discusses the franchise structure. Part IV analyzes the predictions of the minimum wage hike effects and critiques the arguments of those who oppose both the Seattle Ordinance and the raising of the minimum wage in general. The Note concludes, reasserting a recommendation that, because the problem of income inequality requires urgent attention, efforts to address the issue must be treated with greater deference while the debate continues.
I. DEBATING THE HARMS OF A MINIMUM WAGE
Although the Supreme Court has concluded that the government has the power to regulate wages,(fn18) the debate among economists over the merits of a minimum wage rages on.(fn19) This debate has manifested in the arguments surrounding the Seattle Ordinance.(fn20) Much of the debate focuses on the effect that a minimum wage has on job loss.(fn21) Other relevant considerations include the right to a living wage,(fn22) the effect on the economy at large,(fn23) and the burdens placed on public assistance pro-grams.(fn24) There are a number of factors and impacts to consider, but a recent study reported that three out of four economists agree that the benefits of raising the minimum wage outweigh any drawbacks.(fn25)
The supposed adverse effect on employment is one of the key criticisms of minimum wage laws.(fn26) Nevertheless, in light of substantial evidence to the contrary, courts should not give much weight to the argument that the adverse impact on employment should obstruct implementation of legislation seeking to raise the minimum wage.
Somewhat ironically, given that effects on employment are frequently raised in objections to minimum wage laws, wage regulation in the United States finds its origins in strategies aiming to reduce unemployment.(fn27) The original movement to increase the minimum wage developed in response to unemployment during the Great Depression.(fn28) In an effort to improve employment, President Franklin D. Roosevelt proposed the "President's Reemployment Agreement" (Agreement) as part of the 1933 National Industrial Recovery Act (Act), which was ultimately struck down by the Supreme Court.(fn29) The Agreement operated as an opt-in program where businesses would cut workweeks, hire more workers to make up the lost hours, and increase the hourly wages so that workers would earn the same weekly income for fewer hours worked.(fn30) In advocating for this program, Roosevelt reasoned that no business would suffer a competitive disadvantage because all employers would be making this accommodation.(fn31) Employers who voluntarily participated in the program were granted the right to display a Blue Eagle for customers and the world to see.(fn32) Although the Act was eventually determined to be unconstitutional, the Blue Eagle Program illustrates the historic link between unemployment and a minimum wage.
Whether a mandatory minimum wage actually harms or impacts jobs at all has been the subject of heated debate over the years.(fn33) Essentially, there are two schools of thought on the subject: one school contends that a minimum wage exacerbates unemployment, while the other argues that a minimum wage has no effect on employment, or even improves employment rates.(fn34) The first school of thought, which is based on neoclassical economic theory, reasons that a minimum wage negatively impacts employment because setting the price of labor creates a market distortion.(fn35) Economic theory dictates that, as a result of the price of labor being set higher than its value, employers will be unwilling to pay for the "commodity" of some workers' labor, resulting in fewer people being employed.(fn36) In the context of the Seattle Ordinance, this means that, according to economic theory, many...
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