Inflation and Seattle’s minimum wage phase-in
Some employer groups have been arguing that high inflation is a reason to create a permanent subminimum wage. In fact, the actual result of inflation was to lower workers’ real wages, providing employers thousands of dollars in lower labor costs than had been planned.
Key points
Higher-than expected inflation has dramatically lowered the real value of the phase-in rates.
In fact, workers paid the subminimum wage are being paid less this year in inflation-adjusted dollars than in 2021.
This year, subminimum wage employers are able to pay full-time workers almost $3,500 less in real wages than was intended by the minimum wage agreement.
Next year’s minimum wage is exactly the same as has always been planned — $15/hour in 2017 dollars (the year big businesses first reached the $15/hour mark), adjusted for inflation.
A Seatle worker needs a full-time job paying $47/hour to be able to afford fair market rent on a 2-bedroom apartment — more than twice the minimum wage.
Background
The central compromise in Seattle’s minimum wage law was an agreement to allow smaller businesses a lengthy phase-in period, while also ensuring that every worker eventually got to the same inflation-adjusted $15 minimum wage. Smaller businesses with tipped workers were provided a decade-long ramp-up before being required to pay the same citywide minimum wage as every other business.
The long phase-in was a concession to the restaurant industry, whose lobbyists also requested that the ten years of subminimum wage phase-in rates were set in hard nominal dollar amounts stepping up to $17.25/hour. These rates factored in expected inflation along with a phase-in, with the intention that the gap between the subminimum wage and the full minimum wage would shrink each year. At the end of the phase-in, the agreement specified that the full citywide minimum for all workers would reach the inflation-adjusted equivalent of $15/hour in 2017 dollars. (2017 is when big businesses reached the $15/hour mark, with inflation adjustments after that.)
Impacts of inflation
The phase-in rates were built on a background assumption that inflation would average about 2.4%, but as it turned out, inflation has been quite a bit higher in recent years, which has lowered the real inflation-adjusted value of each step. Meanwhile, the full minimum wage has continued to increase along with actual annual inflation, so it has remained constant in real dollars. In addition to lowering the real value of workers wages, inflation has also caused the gap between the subminimum wage and the full minimum wage to grow larger instead of shrinking.
Post-pandemic inflation caused real worker wages to increase slower than planned, providing significant savings to business.
As the graph above shows, the combination of high inflation and a phase-in schedule set in nominal dollars resulted in dramatically lower inflation-adjusted wages over the past few years than had been intended. In fact, workers paid the subminimum wage are being paid less this year in inflation-adjusted dollars than they were in 2021. And the reason the January 1, 2025 increase is higher than had been anticipated is precisely because previous increases on the way to the citywide minimum have been lower than anticipated, providing a substantial cost savings to employers along the way, while also leaving more room to catch up. The final step in the phase-in is the same as always: $15/hour in 2017 dollars, adjusted for inflation.
To reiterate: the result of pandemic inflation is that subminimum wage employers have been required to pay dramatically lower real wages to workers in the past few years, as compared to what had been expected. This year alone, employers are legally allowed to pay full-time workers almost $3,500 a year less in real wages than intended by the minimum wage agreement.
The fact that tens of thousands of workers have been underpaid relative to the intent of the original policy isn't a reason to keep underpaying them now. It is not credible for employer groups to use inflation as an excuse to lobby for a permanent subminimum wage when the actual result of inflation was to provide them a substantial, unanticipated cost savings in real dollars.
If any inflation-related adjustment to the minimum wage law was in order, the phase-in rates should have been increased over the past few years.
Inflation eroded the real value of the subminimum wage, reducing labor costs for subminimum wage employers by thousands of dollars per worker per year
