Trickle-down economics is as predictable as the laws of physics in just one way: When wages go up, the dire warnings of economic calamity inevitably rain down.
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A rally for a $15 minimum hourly wage in New York City in 2015. The city raised its minimum wage to $15 in 2018, while New York State raised its minimum wage to $11.80 in December 2019, and that will increase statewide at the end of 2020 to $12.50.
"High hourly wages mean nothing to a worker if he has no job," the Southern States Industrial Council cautioned in 1938. Extending the minimum wage to restaurants would result in "immediate unemployment," predicted the National Restaurant Association in 1949. The minimum wage "hurts exactly those workers it intends to help—the poor, the unskilled, and the young," admonished U.S. Representative Jim Saxton (R-NJ) in 1996.
And just last month, when the New York wage board appointed by Governor Andrew Cuomo made history by recommending a $15 minimum wage for fast-food workers statewide, we heard the same thing from the fast-food industry.
I call it "Chicken Little Economics."
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For more than 100 years, opponents to raising wages have loudly squawked that the sky will fall, and for more than 100 years, their apocalyptic visions of economic collapse have failed to come true. There is simply no historical data to suggest that sizable wage increases have even a modest unemployment effect, let alone the "job-killing" impact the Chicken Little economists always predict.
The Labor Department reviewed 64 studies on minimum wage and found "no discernable effect on employment." And, contrary to popular belief, relatively large wage hikes like those recently passed in Seattle, San Francisco, Massachusetts and Los Angeles, are not unprecedented. For example, the federal minimum wage jumped from 40 cents an hour in 1949 to 75 cents in 1950, an 88-percent increase over just one year. Yet, despite the usual warning from the Chicken Littles at the National Association of Manufacturing that the hike would prove "a reckless jolt to the economic system," unemployment plummeted, from 5.9 percent in 1949 to 2.9 percent in 1953.
And we've seen a positive impact when wages are raised for specific industries like what the wage board is recommending for fast food. For example, my home state of Washington raised the minimum wage for tipped workers by 85 percent between 1988 and 1990 — and over the following decade restaurant employment growth somehow managed to outpace the state as a whole. Indeed, Washington State workers have consistently enjoyed one of the highest minimum wages in the nation since voters indexed it to inflation in 1998, and if anything, our experience suggests that a higher minimum wage is good for both businesses and their employees. Perhaps that's why restaurateurs who reflexively opposed Seattle's historic $15 minimum-wage ordinance continue to open new restaurants at a steady pace?
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Operating in one of only seven states with no tip penalty, Seattle restaurants already pay their servers a minimum of $11 an hour plus tips — 516 percent higher than the disgraceful $2.13 an hour federal minimum wage for tipped workers, and more than twice the $5 an hour tipped minimum here in New York City, home of the $30 deli sandwich. Yet despite this significant cost disadvantage, Seattle somehow manages to support more restaurants per capita than lower-wage New York. In fact, according to data compiled by Bloomberg, among large metropolitan areas, Seattle trails only San Francisco — and its even higher $12.25 an hour tipped minimum wage — in the number of restaurants per capita.
How is this possible? One obvious answer is that higher paid workers are more productive, loyal, and reliable — a lesson even notoriously low-wage Wal-Mart is beginning to learn. Just one month after raising its own internal minimum wage to $9 an hour, Wal-MartCEO Doug McMillon reports "our job applications are going up and we are seeing some relief in turnover." Good for them! Fast-food chains across the state of New York will experience the same benefits when they raise pay to $15.
But there's another economic truth at play in Seattle and San Francisco that New Yorkers would do well to learn from: When workers have more money, businesses have more customers; and when businesses have more customers, they hire more workers. And when fast-food restaurants pay workers enough so that even they can afford to eat the food they serve, that isn't bad for the fast-food business, it is great for it, despite what McDonald's and others in the fast-food industry will tell you. Living wages in the fast-food industry are simply good for business.
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So don't listen to the tired old squawks of the Chicken Little economists. New York should swiftly adopt the wage board's recommendations and put all fast-food workers in the state on a path to $15. The sky won't fall, but the poverty rate will. And all New Yorkers, workers, tax-payers, and businesses — whether they're in New York City or Rochester — will be better off as a result.
Commentary by Nick Hanauer, co-founder and partner in Seattle-based venture capital firm, Second Avenue Partners, and founder of Civic Ventures, a small group of political troublemakers devoted to ideas, policies, and actions that catalyze significant social change. Hanauer has managed, founded or financed more than 30 companies, creating aggregate market value of tens of billions of dollars. Follow him on Twitter @nickhanauer.