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Cities are passing higher minimum wages – and leaving the suburbs further behind

A sign that reads "15 Good Work Seattle" is displayed below Seattle City Hall, right, and the Columbia Center building, left, Monday, June 2, 2014, after the Seattle City Council passed a $15 minimum wage measure. (AP Photo/Ted S. Warren)
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Last week, Seattle's city council voted to raise the local minimum wage to an unprecedented $15 an hour, more than twice the federal wage threshold and well above the next most generous cities in America. That rate, which will be phased in over seven years for the smallest businesses, currently tops $10.74 in San Francisco, $10.66 in Santa Fe, N.M., and $10.15 in San Jose. It's significantly higher than the $11.50 wage planned for the District, and the $13.09 hoped for in San Diego.

In the rush to measure these cities against each other, though, a more relevant comparison often gets left behind: Nearly all of these cities has hiked or plans to hike the minimum wage well above the suburbs right next door.

"Seattle is a particularly interesting example in that the city is moving pretty quickly to pay what is going to be a significantly – significantly -- higher minimum wage to its workers than will be the case in surrounding King County," says Alan Berube, a senior fellow with the Brookings Institution Metropolitan Policy Program. "It’s opened up about a 60 percent difference between itself and the state of Washington minimum wage."

And Washington has the highest state minimum wage in the country. By Berube's calculation with colleague Sid Kulkarni, there are actually more low-wage jobs currently paying less than $15 in the King County suburbs outside of Seattle than inside of the city itself. And many of the workers who will benefit from the new wage in Seattle -- 40 percent of them according to a University of Washington analysis -- actually live outside of the city.

The landscape of minimum wage increases points to a significant but seldom-discussed trend that has been taking place across the country: The poor who would benefit most from higher wages increasingly live in the suburbs. And a lot of the kinds of jobs they do have been moving out there, too.

Those shifts underscore why cities and suburbs, where they can -- as Washington D.C., Montgomery County and Prince Georges County have -- should aim to coordinate minimum wage hikes. Or, at least, they should try to in the absence of consensus among state or federal policymakers. As for the alternative, Seattle in particular now raises questions at a scale we've never seen before about what happens when you boost wages in just one piece of a labor market.

"I’m sure there will be much to study," says Lawrence Mishel, the president of the Economic Policy Institute.

Says Berube: "If a city is raising its minimum wage by a dollar or two dollars relative to its surrounding jurisdictions, the tradeoffs aren’t that large. But at six dollars, I think people will begin to sit up and take notice."

What happens when neighbors compete on wages

What we might expect to happen, he says, are border wars between neighboring jurisdictions, although the competition theoretically crosses borders in both directions. Suburban communities could lure businesses (and the employment that comes with it) with the promise of lower labor costs. But so, too, could a city like Seattle win the competition for workers with higher wages.

Michael Reich, an economist at the University of California at Berkeley, has studied with Arindrajit Dube and T. William Lester the impact of higher minimum wages on county pairs across the country that straddle state borders separating different wage standards. Consistently, their work has found no negative employment effects in those areas that have raised the minimum wage.

"What’s going on?" Reich asks. "A lot of the attention goes to the demand side of the labor market and the argument that if you raise the price of labor, you’re going to want to demand less of it if you’re an employer. It’s almost like a law, a downward sloped demand curve. But, we teach in Econ 101 that markets are determined by labor demand and supply sides."

Most of the jobs we're talking about here are in sectors like retail, hospitality and restaurants. Those businesses spend a lot of money on employee turnover. But with better wages, Reich says, employees are likely to stay longer, meaning they become more experienced and productive, and the costs of replacing them and retraining workers declines. Those benefits offset some of the higher costs of labor. The rest of the costs, Reich says, may be passed onto consumers in barely perceptible ways -- a few cents on the dollar in restaurants.

One question, though, is whether these more productive, higher-paid workers will come into a city like Seattle from the suburbs at the expense of teenagers and the poor already living there.

Seattle's $15 minimum wage experiment

None of this existing data has considered a wage hike as high as Seattle's, or a differential as large as the one that will open up between Seattle and surrounding communities with the state minimum wage of $9.32. It's likely that those suburbs will benefit in other ways. Suburban residents who earn $15 an hour working in Seattle will bring that money back home to the suburbs. And to the extent that this wage alleviates poverty there, suburbs that have been ill prepared by history to provide services for the poor will need to invest less public money on such subsidies.

Whatever happens in Seattle in the coming years, though, may not necessarily tell us much about how similar scenarios could play out elsewhere. Seattle has a strong labor market and tourism economy. It's unlikely that hotels and restaurants who cater to high-income residents and visitors would be willing to relocate to the suburbs just to save on low-wage labor.

That's not a gamble every city can make. In a city like Hartford, Conn., Berube says, the median income is actually lower than in surrounding suburbs, making it much harder for the city to go it alone on a minimum wage hike. The same could be true in a city like Atlanta, which contains a smaller share of the metropolitan region's population and economy than Seattle does relative to its region.

Washington, D.C., is more akin to Seattle. It's a comparably sized city with a strong economy, nested within a larger region of about four-and-a-half million people. Washington and two of its neighboring counties in Maryland, though, have gone a different route, coordinating minimum wage increases in the last year (without Virginia, that is). "That was a superb, thoughtful, innovative move, to have everybody move together," Mishel says.

The politics of accomplishing that won't work everywhere, though. And cities like Chicago, New York and Los Angeles currently considering a higher wage aren't making plans right now in conjunction with their neighbors.

"I think if they take their time and they do the research, and they look at where their workers live and where low-wage work is in the region," Berube says, "they’ll come to the realization that this should be about the metropolitan labor market rather than what’s going on in the city alone."

Of course, the much simpler solution would be a federal minimum wage increase, or state hikes. But so much of the momentum on this issue right now is in cities. In Seattle, that $15 standard was set by two newly elected local politicians, a new progressive mayor and a socialist city council member. It's possible that they'll prove a $15 minimum wage isn't as harmful as critics warn, and then the suburbs will find it easier to follow them.

"Right now it’s just about first movers, seeing who else comes along, where the conversation moves," Berube says. "It’s probably going to occur in these elite and successful cities. And then it’s a question of does it try to trickle down to the next layer of cities who might be less well positioned to undertake this? Or does it move out to their wealthy suburbs, the Montgomery Counties of the world who also can probably afford to do this?"