More than a year after a new minimum wage took effect in Seattle—$12.50 an hour now for small employers, increasing to $15 an hour by January 2018—prices at most stores haven't gone up.
In a new report, researchers from the University of Washington presented data that showed "little or no evidence" of price increases in most sectors. Before the minimum wage law took effect, most retailers said they would have to charge more—and most low-wage workers were worried that they would have to spend more for necessities. So far, that hasn't happened.
The researchers also checked the prices of things like rent and gas, because they wanted to understand how the law might affect the biggest expenses for low-income families. Those didn't change either—not a surprising finding, since apartments and gas stations don't rely on much labor.
The steady prices in the retail sector were more unexpected. "We looked in grocery stores, drugstores, and other types of retail outlets—we were focusing once again on places where your middle class or low-income families would be more likely to shop," says Jacob Vigdor, a public policy professor at the University of Washington. "The fact that we didn't find very many price increases in those types of outlets was a little bit more surprising to us."
In some cases, store owners told the researchers that they couldn't raise prices because of competition. "In some cases, you've got brick and mortar stores that are competing with Amazon.com—Seattle being the headquarters of Amazon, we really have a very dense on-the-ground network of delivery of almost any commodity you can find in almost any retail outlet," he says.
One exception to the trend was restaurants, which raised prices 7%-9% because they rely so heavily on labor. Even there, however, owners sometimes found other ways to cut expenses as they paid workers more, such as closing during slow hours or asking customers to wait a little longer because fewer people are waiting tables.
"The marketplace is going to shake out those adjustments over the long run, and we'll see which ones are sustainable because the restaurant can do them and not drive away customers," Vigdor says.
It's possible that prices may eventually increase as well. The researchers are currently analyzing more data to see what other impacts the minimum wage increase might potentially have, from fewer jobs to fewer shifts at part time jobs.
Vigdor believes that some cities, Seattle included, can absorb the change more easily than others.
"Seattle's a pretty affluent town," he says. "San Francisco's a pretty affluent town. New York City is an affluent town. In these sorts of places, you're dealing with a lot of consumers who are already used to the idea that they're going to pay a premium for their Fair Trade coffee, and they're going to shop at the farmers market so that their dollars go directly to the person who grows the food ... For that type of consumer, paying the workers fairly can actually be a selling point."
In other areas, such as California's Central Valley or upstate New York, he says the impacts of new minimum wage laws might be more strongly felt. New York and California both recently passed laws that will slowly ramp up minimum wages to $15 an hour. Others, such as researchers from the University of California's Labor Center, have suggested that even in poorer areas, the increase in wages won't dampen the economy—because low-wage workers will have more to spend.
In expensive cities like Seattle, it's hard to argue that low-wage workers can survive without a higher minimum wage. In the University of Washington report, the researchers studied employees who couldn't pay bills even with government assistance. On average, by the end of the month, their net bank balance was -$138.
"The basic message is that it's impossible—families are not making ends meet, they have expenses that exceed their incomes," says Vigdor. "The minimum wage is a band-aid for them, but truth be told, they need more than that. If you're going to live in a community that's expensive, then this kind of ends up being part of the bargain. You're going to have to expect that in order to have people to serve you your meals or serve you in retail outlets or do anything for you—the labor costs are going to be there."