Minimum wage goes up in Minneapolis, city’s own research shows it will lower employment

Tomorrow, the legal minimum wage in Minneapolis will go up. As Kare 11 reports, this is:

…the third time since the city passed a wage ordinance in 2017. 

Small businesses with 100 or fewer employees must pay an hourly wage of $13.50 for the next year, and large businesses, which saw an increase last year to $14.25, will now have to pay staffers $15 per hour.

Small businesses saw their minimum wage rise to $12.50 per hour July 1, 2021, and will see them rise again when they hit $15 by July 1, 2024.

A statement from the city of Minneapolis Wednesday says it believes tens of thousands of families and the economy will benefit from the minimum wage increases.

The city’s own research also shows, however, that other families and the economy will be hurt by the measure. All a minimum wage law does is make it illegal to hire anyone who, for whatever reason, cannot generate the revenue for their employer to cover the government mandated minimum. If hiring a worker adds $10 per hour to employer revenues but the government makes it illegal to pay them less than $11 per hour, then the business will be losing $1 each hour on the hire. No business that wants to stay in business does things like that.

And as minimum wages have climbed in Minneapolis, that is what we have seen. As I wrote in November:

In the Twin Cities, however, it appears that minimum wage hikes did drive declines in employment in the restaurant industry in both cities. This is according to a pair of studies from the Federal Reserve Bank of Minneapolis into the effects of the minimum wage hikes in Minneapolis and St. Paul.

In Minneapolis, from January 2018 to March 2020, the minimum wage rose from $10 an hour to $12.25 an hour for employers with more than 100 workers, with the long-term goal of reaching $15 an hour by 2022 for large businesses and 2024 for smaller ones with less than 100 workers. Over the same period, the number of jobs at “full-service” restaurants — i.e., sit-down establishments — dropped in the city by 12 percent more than it would have if the minimum wage had not been increased. Over that same period, jobs at “limited service restaurants” — counter-order places — fell 18 percent.

So the city is increasing the minimum wage when research it commissioned showed that it has reduced employment in Minneapolis.

There is, however, reason to think that these effects might be muted this time. I’ll explain why next week.