During a recent conversation about the cost of living in Oregon and raising the minimum wage, a representative from an Oregon business lobby asserted that a $15 minimum wage won’t make any difference. After all prices will simply go up across the board, wiping out any newfound buying power that low-wage workers might have thought they would have. It’s a forgone conclusion!
As an example he used Ivar’s Seafood Bar, a Seattle-area restaurant chain that started paying $15 per hour ahead of the scheduled phase in period that will last for the next 6 years. It also eliminated the social obligation to tip by increasing prices by about 20% and distributing that among the employees.
So yes, Ivar’s did raise its prices, but it raised its prices by the amount one would tip, as an alternative to socially obligated tipping. You’re paying about the same as if you would have tipped, and the workers are still getting a share of that price increase, as they would if it were a tip. The price increase was about the elimination of socially obligated tipping, not about compensating for the increase in the workers’ base pay to $15 per hour.
But aside from the clearly flawed example used by the business lobbyist, we’d like to point out the absurdity of the assumption that raising the minimum wage to $15 necessitates price increases.
First, it is at best arguable that there is any longterm direct link between wage growth and inflation. In fact, when you place graphs of real wages and inflation over the decades on top of one another, you can see that there are points on the graph where wages are growing but inflation rates are declining, and there are places on the graph where wages are at a low point while inflation is at a peak. Quite clearly then, there is no correlation over time between wage growth and prices.
Second, both more locally and at a more microeconomic level, there are new restaurants opening right here in Portland that belie the false assumption that large wage increases necessitate price increases.Two restaurants have opened in Portland that pay a minimum of $15 per hour to all their employees, and both have comparable or even cheaper prices than what you will tend to find around Portland. The Loyal Legion, for example, exclusively sells sausages for $6. A comparable sausage, or any sandwich for that matter, at Pizza Schmizza costs $7.95. At McMenamins, sandwiches and burgers start at $11-$12 and go up from there.
Want a drink? Beer at Loyal Legion, where the starting base pay ranges from $15-$18 per hour, is $6 across the board for 12-18 ounces of microbrew. You could go to McMenamin’s where a good pint still costs $5.50-6.50, but unfortunately their employees don’t have a $15 minimum wage.
Another example of a restaurant here in Portland with a $15 minimum wage and cheap prices is Scottie’s Pizza Parlor. Even though they pay a $15 minimum wage, their slices only cost between $2-$3.50. Salads cost $3-$5 for a small or a large. Again to pick on Pizza Schmizza, their slices cost $3.45-$3.95 and their salads range in price from $3.25-$8.95. But the employees at Pizza Schmizza aren’t paid a minimum wage of $15 like they are at Scottie’s.
Conclusion? Raising the minimum wage to $15 per hour clearly does not mean that prices have to go up.