Raising the minimum wage will not boost Minneapolis’ economy

Today sees a public hearing on Minneapolis City Council’s proposed ordinance which will raise the minimum wage to $15 per hour. One argument you will likely hear in favor says that raising minimum wages benefits the economy. As Rep. Keith Ellison put it recently

Raising the minimum wage for workers, including tipped workers, is good for the economy. I understand the anxiety of small businesses. I was a small-business owner myself once. But research has shown that locations with higher minimum wages don’t see more business failures — in fact, the businesses actually grow faster.

 When workers have more money in their pockets, they’re more likely to spend it at local businesses and that means more restaurant customers. 

This is an economic stimulus argument. If the employers give the workers more money the workers will have more to spend on the employer’s products, the employers will be able to expand and so on. It is a nice theory, but it falls down in several ways.

Why stop at $15?

An obvious one is to ask why, if raising the wage by 93% will boost the economy, we don’t raise it by 200% – to $23.25 per hour – and really super-duper charge it. Even most advocates of a $15 minimum wage would admit that was a bad idea. But they always struggle to say why the same doesn’t apply to the 93% hike proposed.

Small businesses do not have spare piles of cash 

A more serious problem is the very first link in the logic chain; “If the employers give the workers more money”.

What if they can’t? This idea rests on the notion that employers have pots of idle cash sitting around. Many of them – particularly smaller businesses – don’t. I wrote yesterday about two small business owners who say they will struggle to comply with the council’s proposed diktats. Today you can add the stories of a builder of affordable housing and an art supply store owner.

If politicians want economic stimulus spending let the politicians do it. Small businesses can’t afford to.

Most politicians don’t understand small business

You can see why politicians such as Rep. Ellison struggle to understand this. If they want money to spend they just pass a law and in it comes. They seem to think that small business owners can likewise click their fingers and conjure up cash.

But do the politicians even care? As I wrote yesterday, perhaps not. Businesses that are unable to fund politician’s promises do not have “any right to continue in this country”, as FDR put it.

Or take City Council member Lisa Bender. Her south Minneapolis ward includes a number of thriving restaurants and bars. She says “Look, I get the perspective of the business owner who says why is the government interfering in my business? I get that…But the reason we are is because our job is to govern for the greater good.”

Minneapolis’ small business owners are vital to the economy and will struggle with this proposed ordinance. All politicians like Council Member Bender can offer them are empty clichés. Since when have they paid the bills?

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