The lessons of Prohibition in Minnesota
One hundred years ago today, the 21st Amendment to the Constitution was ratified, the first line of which read: The eighteenth article of amendment to the Constitution of the United…
Last week, I wrote about the Real Iron Law of Wages. This states that an employer will not pay an employee more than they think that employee will add to revenues. If they did, they would be hiring the worker in the expectation of losing money on the hire, not something a business with a bottom line to think about would do.
Note that this only applies to a business with a bottom line to think about. Where that isn’t the case, an employer might well hire a worker at a wage above what they contribute to revenues. This situation is most often found in the government sector. Where a private enterprise has to give people goods, services, or assets, they desire if it wants money, a government operation can just take it off you. Where the private sector is constrained by its bottom line, the government sector is only constrained by the bottom of the taxpayer’s pocket.
So, if St. Paul pursues its job killing policy of enacting a $15ph minimum wage, the city’s small businesses will be hit hard. Its government operations however, will just dip a little deeper into the pockets of its residents.
With roughly 3,000 workers, the government of the city of St. Paul is one of that city’s biggest employers. New research carried out by the city, reported in the Pioneer Press, finds that raising St. Paul’s minimum wage to $15ph would cost city hall as much as $2.23 million extra in one year alone.
The effects are different for different workers. The Pioneer Press reports that
The St. Paul Fire Department would pay out an extra $44,000. The St. Paul Public Library system would have to come up with an extra $35,000. The St. Paul Police Department would pay out an additional $12,000.
But these are relatively skilled jobs already paying above $15ph for the most part. The real trouble arises when we look at less skilled city employees, such as those in Parks and Recreation.
Overall, the city would pay out an extra $1.94 million in new wages, or $2.23 million including benefits such as Social Security and Medicare tied to wages. Of the $1.94 million, the vast majority — $1.8 million — would come from the parks and rec budget for parks workers and lifeguards.
There is a persistent notion among supporters of minimum wage hikes that they represent a ‘free lunch’. They argue that big businesses, awash with cash, are paying their workers less than a ‘living wage’. All a minimum wage hike will do, they say, is switch money from rich capitalists who already have enough to poor workers who don’t.
We’ve seen, on the contrary, that it will be St. Paul’s smaller businesses who will be most harmed. And now we see that the city government will get hit. Get ready for them to dig a little deeper into your pocket.
John Phelan is an economist at the Center of the American Experiment.
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The legislature appropriates more money, the unions grab it for salaries, the school board cuts middle school band, and everyone blames the legislature for underfunding. Rinse and repeat.