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Government is raising prices to help people with the cost of living – Happy new year!

Today, Minnesota’s minimum wage is going up. It will rise to $9.86 an hour for large employers (those with annual gross revenues over $500,000) and $8.04 for small employers (those with annual gross revenues under $500,000). “This is great news for Minnesota’s lowest-wage workers and will help them keep up with inflation to better provide for themselves and their families,” Ken Peterson, commissioner, Minnesota Department of Labor and Industry, told the Austin Daily Herald.

Not so fast…

But an article on Kare11 titled ‘Prices rise as minimum wage increases in several states‘ should give  pause for thought.

At Granny Shaffer’s restaurant in Joplin, Missouri, owner Mike Wiggins is reprinting the menus to reflect the 5, 10 or 20 cents added to each item.

A two-egg breakfast will cost an extra dime, at $7.39. The price of a three-piece fried chicken dinner will go up 20 cents, to $8.78. The reason: Missouri’s minimum wage is rising.

Wiggins said the price hikes are necessary to help offset an estimated $10,000 to $12,000 in additional annual pay to his staff as a result of a new minimum wage law taking effect Tuesday.

“For us it’s very simple. There’s no big pot of money out there to get the money out of” for the required pay raises, Wiggins said.

At Granny Shafffer’s in Joplin, waitress Shawna Green will see her base pay go up. But she has mixed emotions about it.

“We’ll have regulars, and they will notice, and they will bring it to our attention, like it’s our fault and our doings” that menu prices are increasing, she said. “They’ll back off on something, and it’s usually their tips, or they don’t come as often.”

There are a couple of points to be made about this.

1 – There is no ‘free lunch’

Minimum wage hikes are frequently presented as a way for government to help people struggling with the cost of living. But wages are prices as well. They are part of that cost of living. When government tries to increase these prices by decree, it pushes up the cost of living – the very problem it is acting to alleviate in the first place. Government’s attempts to help actually hurt, as the diners at Granny Shaffer’s are about to discover. This will, in turn, lead to renewed clamor for government to ‘do something’. And on we go…

2 – It is not ‘the rich’ who pay

Advocates of higher minimum wages seem to live in a fantasy world where the cost of these hikes will be borne by “big business”. Kshama Sawant wrote for the Star Tribune recently that St. Paul’s workers are “on the home stretch of a fantastic campaign to put the needs of working people above the profit margins of big business”. As I commented,

This claim is false as well. A Citizens League report released earlier this year found that most of Saint Paul’s large employers such as Allina Health, Ecolab, HealthPartners, and Securian already pay the majority of their workers at least $15 per hour and that the employers who would be impacted by a $15 minimum wage are primarily nonprofits and franchise and small businesses. It isn’t “big business” that will be hit by this measure, it will be the independent bookseller whose margins are being squeezed by Amazon, the immigrant store owner competing with Target and Walmart, or the nonprofit trying to give a disabled worker a break.

I’ve never been to Joplin, Missouri, and have no idea whether Granny Shaffer’s is a ‘big business’. I suspect not. I do not know if it is frequented by the town’s jet set or the Real Housewives of Joplin. Again, I suspect not. Either way, it is not some mythical ‘robber baron’ who will be forking out to pay for the promises of the state’s politicians, just as the politicians in Saint Paul will not have to meet the costs they have imposed on our business men and women. Instead, it will be those business men and women and their customers who pay the price of this legislation.

John Phelan is an economist at the Center of the American Experiment. 

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