All eyes on Seattle’s move to raise minimum wage to $15

City set to tackle income inequality with phased-in schedule of increases

By Claudine Kapel

The minimum wage — and where it should be set — has long been a hotly debated subject.

The debate was recently rekindled when Ontario announced plans to raise its minimum wage to $11 per hour, effective June 1. This change has made the province’s minimum wage the highest in Canada, alongside Nunavut, which has the same rate.

South of the border, the minimum wage has also been making headlines as Seattle recently introduced a citywide minimum wage ordinance that will take its minimum wage to US$15 per hour through a schedule of phased-in increases.

Seattle’s city council unanimously approved the new minimum wage plan, citing its move as a historic vote to “address income inequality.” The change would give the city the highest minimum wage in the United States.

The council has defined a path to phase-in the $15 per hour minimum wage annually over three to seven years, depending on employer size.

Small employers, defined as businesses with less than 500 employees, will reach the $15 per hour minimum wage in seven years. But the new ordinance also establishes a temporary guaranteed minimum compensation responsibility requiring small employers to provide $15 per hour in total compensation within the first five years that can be achieved by combining employer-paid health care contributions, consumer-paid tips and employer-paid wages.

Meanwhile, large employers — defined as businesses with 500 or more employees either in Seattle or nationally — will reach the $15 per hour in three years, although it is extended to four years in cases where employees receive health care benefits.

The first round of changes is slated to take effect on April 1, 2015, in which the citywide minimum wage for Seattle will rise to either $10 or $11 per hour, depending on employer size.

Granted, the minimum wage is managed differently in the United States than in Canada. But the pressures and concerns associated with income levels and wage disparities are striking a more universal chord. That’s why all eyes will be on what’s unfolding in Seattle.

The council says its minimum wage strategy represents “a workable and careful compromise that recognizes both the harm caused by stagnant wages and the harm to local businesses should we move forward too quickly.”

The city formulated its strategy with a special committee that included representatives from Seattle’s business, labour and non-profit communities. It also reviewed studies, held public forums for feedback and hosted industry-specific discussions.

The drive for a higher minimum wage was rooted in city council’s concern that Seattle was becoming increasingly unaffordable for many of its residents. A study found 24 per cent of the city’s workers earn hourly wages of $15 per hour or less, while about 13.6 per cent of the Seattle community lives below the federal poverty level.

In announcing the results of the council vote, Council member Sally Bagshaw said: “In the words of Franklin Delano Roosevelt, ‘The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.’ Today we have made true progress so people can work and live in our city.”

Responses to Seattle’s new minimum wage legislation have been predictably divergent. Some argue the move is bad for business, and will lead to lower levels of employment as well as less business investment and growth. On the flip side, others argue Seattle isn’t increasing the minimum wage fast enough.

For its part, Seattle acknowledges it is breaking new ground. One city council member was quoted in the Seattle Times as noting: “No city or state has gone this far. We go into uncharted territory.”

Only time will tell whether the rising minimum wage will deliver the benefits being sought by Seattle. But given the resonance of the issues at hand, no doubt many will be watching to see how the story unfolds.

Claudine Kapel

Claudine Kapel is principal of Kapel and Associates Inc., a human resources consulting firm specializing in compensation design, performance management, and employee communications. Claudine is also the co-author of The HR Manager’s Guide to Total Rewards and Straight Talk on Managing Human Resources.
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