In June of last year, the Seattle city council passed a $15 an hour minimum wage law that will be phased in over time, with the first increase to $11 an hour taking effect on April 1, 2015. Additional increases in the city’s minimum wage are scheduled for January 1, 2016. Depending on an employer’s size and fringe benefits, some businesses will be paying new higher minimum wages at the start of the new year of $12, $12.50 or $13 an hour, while some smaller employers will have a minimum wage hike to “only” $10.50 an hour on January 1.
What effect will the eventual 58% increase in labor costs from $9.47 to $15 an hour have on small businesses, including Seattle area restaurants? Actually, it will an increase to $18.55 an hour for many employers once all costs and taxes are added. It’s too soon to tell for sure, but there is already some preliminary evidence that April’s minimum wage hike to $11 an hour, along with the pending increase of an additional $1-2 an hour in a little more than a month for some businesses, has started having a negative effect on restaurant jobs in the greater Seattle area.
The lighter blue line in the top chart above shows that restaurant jobs in the Seattle area started to stagnate and then decline around the first of this year (when the state minimum wage increased to $9.47 per hour, the highest state minimum wage in the country), following steady growth in Seattle MSA food services employment during the previous five-year period between January 2010 and January 2015 (data here). On April 1 of this year, the city’s minimum wage increased to $11 an hour which may have contributed to the loss of 900 Seattle area restaurant jobs between January and October, the largest decline over that period since a loss of 3,400 restaurant jobs in 2009 during the Great Recession (see bottom chart above). What makes the loss of 900 restaurant job this year especially noteworthy is that the average job gain during the January-October period over the previous five years from 2010 to 2014 was more than 3,500, and over the previous three years more than 4,100.
What is also noteworthy about the loss of Seattle area restaurant jobs this year is the fact that restaurant employment in the rest of Washington state outside of the Seattle MSA is booming, as the top chart shows (see dark blue line, state restaurant employment data here). At the same time that Seattle area food services employment has declined this year by 900 (and by -0.67%), restaurant jobs in the rest of the state have increased by a whopping 6,200 new positions (and by 7.1%). Nationally, restaurant employment has increased by 2.4% this year since January.
And overall payroll employment in the Seattle MSA increased 2.1% and by 39,100 jobs between January and October, while employment at the state level increased 1.9% and by 58,900 jobs during that period, with both of those job growth rates above the 1.3% growth in payroll employment at the national level during that period.
Bottom Line: Overall, employment growth this year from January to October in Washington state (1.9%) and in the Seattle MSA (2.1%) is above the 1.3% payroll growth nationally, suggesting that jobs in Seattle and Washington are growing faster than the national average. Further, restaurant employment in the state of Washington outside of Seattle is booming this year, with food services jobs increasing by 6,200 (and by 7.1%) between January and October. Further restaurants nationally have increased payrolls by 2.4% since January, well above the overall payroll growth of 1.3%, indicating stronger-than-average growth in hiring by America’s restaurants.
Meanwhile, there is at least one weak spot in Washington’s employment situation – restaurant employment in the Seattle MSA has declined by 900 jobs since January, the largest decline over that period since 2009 during the Great Recession. Historically, it takes a national recession before Seattle restaurant employment decreases between January and October, and there’s no recession this year to explain the drop in the area’s restaurant staffing levels.
One likely cause of the stagnation and decline of Seattle area restaurant jobs this year is the staggered increase in the city’s minimum wage to $15 an hour. Perhaps Seattle’s restaurant employment will recover, or perhaps it will continue to suffer from the upcoming full 58% increase in labor costs for the city’s restaurants that will be phased in during the coming years (and as high as a 95% increase for some employers after including additional costs and taxes) – time will tell. What we know for sure is that there are now 900 Seattle area restaurant workers who were employed in January who are no longer employed today, while more than 6,000 restaurant jobs have been added statewide outside of Seattle during that period, so it looks like the Seattle minimum wage hike is getting off to a pretty bad start.
Update: And with the pending increases in the minimum wage to between $12 and $13 an hour in about 5 weeks, I think we can expect even tougher times ahead for Seattle’s restaurant industry with continued weakness in food services employment.
Technical Note: The BLS restaurant employment data for the Seattle MSA covers the entire metro area of 3.6 million people, while the population in the city of Seattle, which is the only part of the MSA that is subject to the eventual $15 an hour minimum wage, is only about 652,000. Therefore there are several possibilities when considering the loss of 900 restaurant jobs this year:
- The loss of 900 restaurant jobs this year in the Seattle MSA could be spread evenly throughout the entire MSA, even though the non-Seattle part of the MSA is not subject to the city’s pending $15 an hour minimum wage.
- The loss of 900 restaurant jobs this year in the Seattle MSA could be concentrated in the non-Seattle parts of the MSA, even though restaurants there are not subject to minimum wage hikes and even though the state’s restaurants beyond the Seattle MSA are experiencing very strong job growth. This possibility doesn’t seem likely.
- The loss of 900 restaurant jobs this year could be concentrated in the part of the Seattle MSA – the city of Seattle – which is the only part of the greater Seattle area subject to the minimum wage hikes. That option would make more sense than the other two options above. In fact, the restaurant job losses in the city of Seattle might even be much higher than 900 this year. If we realistically assume that the restaurant industry in the non-city parts of Seattle are booming along with the rest of the state (7.1% job growth this year), then the possible gains in suburban Seattle restaurant jobs could actually be offsetting some of the city’s restaurant job losses. For example, suppose restaurant jobs in suburban Seattle grew by 1,000 this year, while restaurant jobs in the city fell by 1,900. The BLS would then report a loss of -900 restaurant jobs so far this year for the Seattle MSA, even though there was a loss of 1,900 jobs in the one part of the metro area that is burdened with higher minimum wages.
When restaurant jobs are experiencing strong growth both nationally and statewide in Washington outside Seattle, along with above-average growth in overall payroll employment in the Seattle MSA, but restaurants in the Seattle area are shedding almost three jobs per day at a rate unprecedented outside of recessionary periods, there seems to be one obvious reason for the loss of almost 1,000 jobs in the Seattle metro area this year – the city’s $15 minimum wage law.