$15 per hour is too much too fast.

It may be time to raise the minimum wage, but $15 per hour is too much way to fast.  That is the proposal in Seattle right now.  This will not have the effect that people think it will have.  There are three questions that politicians need to consider before raising the minimum wage.  First, what percentage of workers will be effected by the proposed increase, not just overall but on a business by business basis.  Second, what will business do to meet the excess payroll expenses.  Third, what are the potential unintended consequences of the increase.

The typical business guideline is that a company spend 30% of their revenues on labor.  That means that for every dollar your company makes, you should spend 30 cents paying people.  If your company makes 1 million dollars, then you can spend 300,000 on paying your employees.  But this varies by industry.  Service industries like hotels and restaurants will spend a higher percentage of revenue on payroll while many professional offices will spend less on payroll.  Service industries pay a little over 50% of their revenue on payroll.  Other industries pay as little as 15% on payroll.

Currently, the federal minimum wage is 7.25 per hour.  15 dollars per hour represents a 107% increase in the minimum wage.  This increase is not only going minimum wage workers.  A business is going to have to raise almost everyone's wage.  Currently, approximately 30% of the workforce nationwide makes $15 per hour or less, depending on who works full-time or part-time, where only about 2% of the workforce makes the minimum wage.  If the minimum wage is raised to $15 per hour, a company is not going to raise the wage of the person who makes $14.75 to $15 per hour.  The raise will have to be greater.  What effect will this have if only Seattle raises the minimum wage?

The companies that will be hardest hit are the service companies.  The service industry will be hit the hardest.  This means that businesses in these industries will have choices to make.  How do you deal with such an sharp increase in your expenses.  This isn't like some vendor increasing their prices.  You have no choice but to pay this money.  A company that can't make payroll doesn't stay in business for very long.  If your paying 50% of your revenue on payroll and suddenly it become 100%, you have nothing left for any of your other expenses.  You have to pass most of these expenses onto your customers.  Or you cut your staff.  Or you move.  Or you close.

What will likely happen is that some business will pass the new expenses onto their customers, and will even double their prices.  Some business will cut their staff.  Some businesses will increase their prices a little while cutting some staff.  Some businesses will relocate.  Some businesses will close.

Can you imagine operating a restaurant with only have the staff?  Can you imagine waiting longer for your meal because there are not any clean dishes?  Because there is not a cleared table?  Can you imagine waiting twice as long for your food because the wait staff and kitchen staff are inadequate?  Imagine what happens when word gets out that you can stay or eat in Everett or Bellevue or Renton or Federal Way pay less and get better service?

Could a business operate in downtown Seattle, bring in perspective clients and deal with the expense.  Would it also make sense to operate that business in the suburbs?  Would you also not want to operate where your employees have less expense to deal with.

There is also a myth that many people have.  Too many people believe that their boss, their business owner has plenty of money.  That they can absorb the expense.  Even if you have the cash, even if you are Bill Gates or Warren Buffet, you don't stay that way for very long by letting your payroll expense grow beyond your revenue.  However, most owners in the business industry aren't exactly rolling in the cash.  It's a good bet that the person who owns the nearby McDonalds franchise is struggling just as much as most families are.

Imagine going to Seattle in the near future where most of the service businesses are boarded up.  Where most people at the downtown offices brown bag not to save money, but because there are very few affordable places nearby to have lunch.  Or where the company caters lunches from nearby cities to save money.  Imagine going to Pikes Place Marketplace and finding very few of sites there are operating.  Imagine walking along the waterfront with your family, but finding that the only places to eat will cost you hundreds.  This is probably not the future that the Seattle Chamber of Commerce wants, which explains why they are fighting the proposed increase.

It may be time to raise the minimum wage, but such a steep increase will be too much for one business community to deal with.  The effect on the service industry will be too drastic.  If done, the increase in the minimum wage should be lower and implemented more gradually and should be done in a way that is realistic.