Why Airports Can Successfully Raise Their Minimum Wage (at Least a Little)

Airlines are suing to block an increase in the minimum wage at Seattle airport to $11.22 per hour in January 2and then $13 in 2017.

I won’t delve into the legal merits of the case, just into the unique circumstances of airports. Seattle itself has voted to raise its wages even higher than this, and we’ll see what effects that has, but I suspect that an airport can do it with far fewer negative consequences.

An airport is a huge capital investment in an airport, that’s not easily moved or replicated. So passengers (as customers) and airlines (as employers) are captive — there are alternative options, but they’re limited. And many of the jobs don’t have simple substitutes.

At a certain margin airports can probably force higher wages without corresponding reductions in employment. Surely there are tradeoffs, and airlines will be less likely to expand employment and more likely not to replace workers and try to operate short-staffed. But on the whole you can do it.

There are limits — not through employee wages, but massively high capital costs, Miami has become one of the most expensive airports in the country for airlines to operate. Low cost carriers fled to much-cheaper Ft. Lauderdale. Where there’s a nearby alternate airport, airlines and passengers to do have a choice. What happens at Miami, though, is that American Airlines earns an above average rate of return because competition has left and more or less ceded the market that doesn’t shift to Ft. Lauderdale. Without competition, having pushed low cost carriers out, fares rise.

High costs do mean less competition and higher fares in Miami. In Seattle the story is a little different. Driving – and long drives to alternate airports – are still options, but there aren’t the easy substitutes like Ft. Lauderdale and Miami offer.

And net net Seattle sees more service than in years’ past because it was arguably under-served before. Delta has built a hub there, presumably knowing going in the kinds of costs it would face, though they’re a party to this lawsuit to block the forced increase in wages.


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Comments

  1. Think you ought to stick to miles and points and steer clear of theoretical economics debates Gary. The idea that airports can sustain artificially higher wages due to a lack of alternatives for pax naively assumes that the only thing pax can do with their money is use it to fly.

    Just look at the counterfactual for an easy retort to your entire post: if airports can sustain higher wages, then why aren’t they already higher? Why would we need a minimum wage at all?

  2. Higher wages are definitely a mixed-blessing for consumers and travelers. Go to a McDonald’s in Australia or Scandinavia and you’ll see the impact of higher wages: the food costs more. On the other hand, in much of Europe, McDonald’s has now replaced many counter staff with self-serve kiosks to save wages: I like these! Higher wages also tend to lead to higher quality, more motivated employees: compare the staff at Target to Walmart, or In-n-Out to McDonalds.

    When higher minimum wages are limited to a small geographic area, the benefit is magnified for customers. At SEA-TAC, assuming there’s not some union thing involved, you’re going to get much better employees attracted to these jobs. At a hotel, $15 will get you a better desk clerk than $10. Of course, these doesn’t always benefit the locals; suburban kids, college students, etc. will travel to these higher pay jobs, often displacing the locals that the authorities are trying to help.

  3. While St. Louis Lambert Airport is in the county, it is own and operated by the City of St. Louis. To enter into a contract with St. Louis, a business is require to pay $16.18 an hour or $12.37 with health benefits this year. The voters want this for the city; but the Chamber of Commerce was successful in court blocking it. Since Mayor Slay recently banned the ‘felon question’ on the city employment application, expect businesses Lambert to be force to adopt the same crazy policy.

  4. Minimum wages are set by the government, skill and service quality targets are set by management. Management that wants better skilled employees and service quality (ie wants to deliver a better product) should elect to pay higher than minimum wage to attract better workers to be able to deliver the better product. If management is forced to pay the counter person $15 instead of $10 that counter person’s skill doesn’t change overnight just because his wage was regulated higher. All that happens is that the cost to deliver the same basic service just went up, a cost that will ultimately be passed on to the consumer.

  5. @Chas – I don’t think we ‘need’ minimum wages, I also don’t think that over the long term minimum wages *at an airport* serve to funnel more money to existing workers… they will attract higher skilled workers and more productive workers, and lower skilled workers employed a ta lower wage are likely to lose out. But I was quite careful in my language in the post, it’s very much open to the possibility that at certain margins there are substitutes to using the Seattle airport [driving to Portland, driving, teleconferencing]. So there’s a limit to how much of a cost burden can be imposed here. But a greater burden can be imposed on a fixed capital asset that can’t readily flee, than on businesses that can more easily relocate.

  6. This seems to be mostly a one dimensional analysis that assumes airlines and passengers won’t make changes in the face of an increase in costs.
    Faced with increased costs(both direct staffing and indirect as everything at the airport just got more expensive), decreasing frequency and upgauging aircraft size becomes a more reasonable alternative for some carriers, in other cases it could tip certain flights/routes into the unprofitable category resulting in less competition on the remaining flights also driving fares higher.
    As far as alternate airports for those in the Seattle metro area, you’re absolutely correct, however for those in the south western part of Washington where the drive difference is no more than 60 minutes, and it avoids the frequent traffic mess between Tacoma and SeaTac, PDX becomes more popular.
    Another dimension you touched on is hub status. While Delta is pretty much locked in if they want a west coast hub (neither LAX or SFO could handle the capacity needed), Alaska on the other hand is not and could begin shifting some flights and operations to PDX unless that airport adopts a similar measure, something that is under consideration.
    So longer term even with the captive traffic, Seattle could end up with less flights at higher prices. I’m not sure how that can be considered a success for anyone but the workers in that case.

  7. Gary,you’re right that at the end of the day, unlike many companies in California, an airport can’t simply pack its bags and move, however the airlines servicing that airport very much can or at least make changes resulting in higher fares and lower quality service.

  8. Higher wages for unskilled work produces several results. One is that minorities and those with less education become replaced over time by more educated lower middle class workers who would not take a job at the original wage, but will take it at the higher wage.

    It also means increased incentive for employers to replace workers with automation. I was at WalMart yesterday, and saw people making duplicate keys from a machine. Previously making those keys required a worker, now it’s cheaper and easier to have a machine do it.

    There are already developed machines that can make high quality hamburgers, and customized coffee drinks of the Starbucks type, with no human interaction at the pos. So forced higher wages means more unemployment as machines replace workers.

    Higher wages mean that everyone, including lower class workers, that are supposed to be helped by this, now will pay more for everything. So the worker who just got a wage increase pays some of it right back in higher prices. Not to mention the higher taxes on those wages reduce the percentage of take home income.

    Finally, the real reason unions are pushing increased minimum wages so hard is that many union contracts include clauses that peg union wages at a multiple of the minimum wage. So when the minimum wage goes up, high paid union workers wages increase even more.

  9. Actually, commenters, this has been studied over and over and over and over and over, and an enormous preponderance of evidence suggests that increasing the minimum wage does *not* decrease employment (which, of course, mass automation would).

    Reasons range from lower turnover to increased productivity to the fact that most low-wage workers are employed by large, profitable corporations that easily afford the wage increase.

    In fact, a 2003 Berkeley study showed that, when the minimum wage was increased at SFO from $6.45 to $10, “turnover among security screeners plunged from 95 percent to 19 percent… After wages increased at the airport under a living wage policy, 35 percent of employers reported improvements in work performance, 47 percent reported better employee morale, 44 percent reported fewer disciplinary issues, and 45 percent reported that customer service had improved.”

  10. @Rose – increasing minimum wage over small population centers doesn’t necessarily, especially when the wage is increased below the market clearing wage.

  11. The Port of Seattle (POS) is the one raising the minimum wage at SEATAC Airport. A court has already ruled that the POS wasn’t bound by a vote in the city of SEATAC to raise the minimum wage in that community.

    The 2015 increase is a modest raise over Washington state’s minimum wage, which will be $9.47 an hour in 2015 (and is adjusted annually for inflation).

    Living in Spokane, WA (280 miles to the east of Seattle), I can tell you that the POS proposal is likely to help those working at the airport with the higher cost of living that is present on the “west side” of the state.

    If it costs travelers a dime or two or three more for their coffee or meal, so be it. Fly to (or through) a different airport.

  12. Isn’t it patently obvious that higer wages actually benefit employers?

    If you do not believe me just read the policy justification for Executive Order 13658:

    This order seeks to increase efficiency and cost savings in the work performed by parties who contract with the Federal Government by increasing to $10.10 the hourly minimum wage paid by those contractors. Raising the pay of low-wage workers increases their morale and the productivity and quality of their work, lowers turnover and its accompanying costs, and reduces supervisory costs. These savings and quality improvements will lead to improved economy and efficiency in Government procurement.

    If President Obama says so, surely it is true, n’est-ce pas?

    Of course this is nonsense – if employers believed there was a business purpose to higher wages, they would certainly offer them of their own volition.

    But Gary is correct – airports, which have tremendous fixed costs, ought to be prime candidates for concluding that they should, for business reasons, pay a premium for the best and most productive employees, even those in traditional minimum wage roles.

  13. @ Gary – let’s look at a larger sample than Rose’s. There is no evidence that an increase in the minimum wage in the United States has EVER had a significant effect on the country’s GDP. Is that not evidence enough?

    @ Robert – we can depress wages again and again, and there will always be someone to take the job. But who can live on the minimum wage of around $15,000 a year – in ANY part of the USA?

    @ jfhscott – these same business sure think there’s a good reason to raise wages for the management team, despite their being little evidence that it improves performance. Why should the people who cook be treated differently?

    Most other developed, industrialized countries have higher minimum wages, strong unions, and continue to enjoy economic growth (Australia is an excellent example). Why is it that Americans continue to believe this bizarre economic ideology that has absolutely no basis in history? Trickle down is a fool’s ideology. After all, it’s those very same people who will argue till death that “You get what you pay for”.

  14. @Joe, if corporations squander cash on executive pay, I suggest that the shareholders take that up with the boards.

  15. @Rose

    “most low-wage workers are employed by large, profitable corporations that easily afford the wage increase.”

    Only because there are minimum wages and taxes that are so high that you or I cannot afford to higher them. If the bar weren’t so high, most college-educated people working for the man, could also pay for less fortunate folk… and everybody would win.

  16. @ ed – regarding hiring:

    First, we could simply remove health care from the equation, and have a single payer system that reduces everyone’s costs, but many Americans, including business, are mortified at the prospect.

    Second, we can reduce or eliminate payroll taxes, but those same people who don’t want single payer seem to think that reducing taxes should be confined to those in the top 5% of income earners.

    Finally, minimum wages are so low that over 50% of full-time fast food workers are on some form of public assistance, such as food stamps or Medicaid – a massive transfer of wealth from the taxpayer to corporate headquarters.

    Again, this is not complex, nor is it abstract. It has been tackled effectively in most industrialized countries, but Americans have some weird philosophical attachment to an economic theory that has – factually – been discredited.

  17. @Gary I’m still not sure the fact that an airport can’t pick up and move matters here. Your argument seems to treat the airport as a static unit when in fact it is its own dynamic mini-economy. The fact there may be 3 McDonald’s and 4 airlines operating there today doesn’t mean there will necessarily be tomorrow; artificially raise the cost of doing business in this “economy” and fewer people and firms will. In fact the high fixed cost nature of operations at airports means they are even more fragile to marginal changes in variable costs; fewer areas to squeeze. In many ways the fixed-asset nature of the airport is also detrimental in this regard as the only way to adapt to the squeeze is to shrink or go out of business, both of which effectively destroy capital.

  18. @Joe
    Australia owes its growth to its booming mining industry on the back of credit-fueled demand from China. When the China house of cards falls, let’s come back and talk about how Australia is doing.

    You seem quite concerned about the exploitation of the poor, but the minimum wage policy you advocate bears a cost, most of which is borne by the very poor you care about, through their inability to freely enter into a contract for wages lower than the imposed minimum. As someone who also would like to see the lives of the poor bettered, I’d much rather see a system of government subsistence assistance, as these costs are borne by taxpayers more broadly and not just shifting costs around among the low income and jobless demographics.

  19. @ Chas – I don’t disagree about Australia’s reliance on the mining boom. Nevertheless, the USA is in the midst of a boom, too: record corporate profits, record sharemarket, and decent growth. The problem is that the fruits of that boom are so unevenly distributed, that it’s not helping to grow wages for the majority of the population. In Australia, that is not the case.

    As for people “freely entering into wage contracts”, the problem is that no worker wins a race to the bottom, even if someone is happy to work for $2 an hour. I assume that you would agree in a civilized country, we don’t want that either. With no minimum wage, we’d head down that path pretty quickly.

    While I agree with you that subsistence programs are important, I tend to think that anyone who works a 40 hour week should not have to rely on subsistence programs. The problem with our low minimum wage is that they do.

Leave a Reply

Your email address will not be published. Required fields are marked *