The story on Seattle’s decision to introduce a record high $15/hour minimum wage is being told looking backwards. Pundits from both sides of the political spectrum are focusing on a narrative of middle class wages, union membership, and inner-city poverty. This standard narrative misses the greater story: Seattle’s decision puts the city at the center of the rise of service job automation, while also accelerating the dramatic inversion of the American city. The Seattle City Council’s attempt to combat rising income inequality (driven, in large part, by a booming tech sector and the increasing automation of low wage manufacturing work) will unwittingly set off a gold rush in technology and automation.
There is surprisingly little consensus among economists on the impact of dramatic increases in the minimum wage. The best data can be summed up as this: poverty does decrease, but so too does the total number of jobs. But what Seattle is attempting is nearly unprecedented, in that the increase is dramatic (a nearly 50% increase over the existing wage), sustaining (pegged automatically to inflation after implementation) and gradual (phased in over 3-7 years, depending on the size of a business). I predict there will be two major impacts, neither of which are being discussed extensively, and with both representing major unintended consequences from the perspective of Seattle legislators.
Seattle’s City Council just made their city ground zero for the automation of service industry jobs.
First, and most importantly — Seattle’s City Council just made their city ground zero for the automation of service industry jobs. Imagine this: You’re an entrepreneur working on the next generation of those (currently terrible) self checkout systems. You’re bootstrapping your company, but having trouble getting traction with merchants. Everyone you talk to sees the value in automating the checkout process, but most businesses can’t quite justify the capital expenditure required to save on staffing costs. Seattle just created a geographically dense collection of highly motivated customers overnight. If they aren’t already, that entrepreneur should be on a plane to Seattle, ready to pound the pavement for new customers.
Remember, Jeff Bezos famously started Amazon in Seattle due to its combination of technical talent and advantageous tax situation. Watch closely: as the new wage phases in over the next seven years, expect large companies to test their US automation efforts in Seattle first, and expect a boom in startups bringing cheaper, easier forms of automation to cash-strapped small businesses. The net effect of that boom will be more highly skilled jobs in the Seattle region, and a commensurate increase in income inequality in the city.
The gravitational pull of dense, wealthy city centers is intensifying the inversion of American cities.
Second, and related to the problem of rising urban income inequality: the gravitational pull of dense, wealthy city centers is intensifying the inversion of American cities. Since the 1940's, American cities have been typified by poor, urban cores, with wealth distributed in concentric bedroom communities connecting commuters to the remnants of traditional downtowns.
The past decade-plus has seen this trend reversing, starting with the revival of urban cores in New York, Chicago, and San Francisco. Whatever your pet cause for this reversal (ranging from the changing lifestyle preferences of millennials, to falling urban crime rates driven by the elimination of leaded gasoline), it is now clear that in almost every city, wealth is concentrating in the center, while poverty is pushed out to formerly affluent suburbs. Seattle just unintentionally accelerated that process. Minimum wage workers in the city will be better able to afford a rising cost of living, but those workers that lose their jobs will be forced out to lower paying opportunities in the suburban periphery. Along with the aforementioned rise in inequality due to a booming tech sector, expect Seattle in ten years to look wealthier and less diverse.
At first glance, these predicted consequences paint a dim, even critical view of the decision to increase the minimum wage. I think the opposite conclusion can be drawn, and that Seattle should be lauded for putting themselves ahead of the coming automation wave. By recognizing the increasing political power of wealthy, dense metropolitan areas, Seattle can take action on what will ultimately be a series of difficult political decisions. How do cities cope with poorer commuters streaming in from the periphery? How does a tax base change as staff-heavy businesses become more capital intensive? Perhaps most importantly, what does an American city look like when it’s densest areas are almost universally affluent? The next 50 years will see these questions answered across the developed world, and Seattle will be leading the way.