The law is less than a month old as we write this, but employers in Seattle are already seeing the fallout from one of the most talked about and controversial new ordinances this year. When the city council voted on June 2 to raise the minimum wage of workers in the city to $15 an hour, it was a significant jump over the current Washington State minimum wage of $9.32 and the $10 an hour being debated on the national stage.
A recent article in the Seattle Times gave an example of a typical scenario: Ron Oh is a Holiday Inn Express owner who works hard to create a profitable business, but the increase in the minimum wage over the next 3 years could cut $250,000 out of his annual profits. In 2013, his profit margin was $600,000. Oh fought to have small franchisees like himself not be treated the same as large businesses. When that approach failed, he joined a lawsuit filed by the International Franchise Association claiming that the law is unconstitutional because it is discriminatory.
Oh and other owners say they are hoping to not lay off workers but will instead try to adjust their business models by raising prices or dropping the hours of employees. It’s a delicate balancing act, and it could take some time before owners figure out the best strategy.
Nationally, companies like Gap are jumping ahead of the government and planning to go ahead and raise their minimum wage to $10. The results were easy to quantify for the popular clothing store company. Applications increased by 10%. Sister company Old Navy also witnessed an increase in applications for positions, a reversal of the declining job applications the store had recently observed.
Gap executives believe the pay increase will allow the company to not only have the pick of the best applicants, but also retain frontline staff for a longer period. Employee turnover can be costly, and retaining good employees can actually keep costs down.
Several other businesses have jumped on the higher pay bandwagon, arguing that it’s just good business to pay more to employees. Employees who earn higher wages are typically easier to retain and more productive. The rollout of the $15 minimum wage in Seattle is just getting started, and it will take time to see the full effects as businesses plot, implement, and adjust their strategies over the next few years.