This isn’t the first time this has happened, although I won’t say that it’s universal. It may be that the Seattle economy is expanding anyway, and if you’re politically conservative you might argue that it would be expanding more quickly but for the living wage amount.

The problem is that the opposition to minimum wage increases on an economic basis is simplistic. The argument is that businesses will not be able to afford the increase and will lay off workers. And initially, there are some layoffs. But it’s based on a very static analysis of economy.

First of all, the layoffs are never what free marketers project because minimum wage positions tend to be essential to the business, as contra-intuitive that seems. There isn’t a lot of flexibility on the demand/supply curve. The businesses hiring minimum wage workers are generally operating at close to bare minimum. So basically they either retain the workers or they go out of business. And the latter rarely happens because the economies are dynamic.

The consumers at the bottom can’t save. They can’t invest. Maybe they pay off some debt with increased wages, but mostly they spend. If they have more to spend, they spend more. And the economic multipliers (the cycle of spending – you buy a sandwich and then the business buy’s bread, tuna, lettuce, and then those businesses hire workers, etc.) are localized and the increased business ultimately metabolizes the increased labor, and often without significantly increasing prices because the market won’t bear all of the increases. Basically the increased wages generate a Keynesian result by increasing the volume of business.

This isn’t always a good thing. It’s inflationary, but inflation hasn’t been a problem in this country since prior to the Crash. And in an economy like Seattle’s – the fastest growing metropolitan area in the country (and no, I don’t think that’s a good thing), the wages have been increased and have provided some small improvement in the standards of living of those at the bottom of the wage scale. This has happened before, and hopefully will again.

Mind you, I don’t think it’s a panacea. We need a thorough restructuring of the national economy and I’m concerned that Seattle will face the economic cleansing of the SF Bay area. But this experiment represents a ray of light. Call me a socialist.

Seattle experiment pays off for lower income workers.

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