If we give everyone more money, what happens? Since the total amount of goods and services stay the same, by the general laws of supply and demand, everything will become more expensive and everyone ends up the same as before. This is the basic theory behind inflation. The effect is almost immediate, since the extra money must come from somewhere: new taxes, fees, or any other form of price increase.
Minimum wage has a rippling effect. When it gets higher, the pay grades above it must also go up. If the businesses cannot raise prices then they must absorb the increased costs. They will make less profit or shift the costs elsewhere: hiring less workers for example. Raising minimum wage therefore either causes inflation or worsens unemployment.
The city of SeaTac passed the measure to increase minimum wage to $15. This is a small city about 10 sq mi (about 4 are the airport). It houses 27,000 residents and 900 businesses, including Alaska and Horizon Airlines. The current federal level is $7.25, and the state $9.19 (highest of the nation). With their minimum wage 63% higher than the rest of the state, businesses face difficult choices: raise prices, absorb the costs, move out, or find some loophole.
Loophole it is! The new laws subject only hotels with 100 or more rooms and 30 or more employees. There are similar ones for other industries, like transportation. It turned out that airport workers are also excluded. Simply, few people really benefited, except for the politicians behind the measure.
The newly elected mayor of Seattle, Ed Murray, said he is also thinking of the same idea. There is only a simple problem: he does not know how to pay for the increase. Let’s see his options: new taxes, new fees, raise prices of city services, or reduce city workers. Anything else? Oh, yes, create loopholes so that no one actually gets paid more.
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