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Minimum wage: Nonprofits and small businesses struggle when it’s raised

John Phelan

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.” So, 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. And who doesn’t like that?

The trouble is that this picture is complete and utter fantasy, as the new report from the Citizens League shows. And fantasy is no basis for sound public policy.

The Citizens League found that, in fact, most of St. Paul’s large employers such as Allina Health, Ecolab, HealthPartners, and Securian already pay the majority of their workers at least $15 per hour. Two other large employers, U.S. Bank and Wells Fargo, have recently announced that they will soon be raising their minimum wage to $15 for all employees.

The employers who would be impacted by a $15 minimum wage are nonprofits and franchise and small businesses.

The Citizens League interviewed some of these people for its report. It found that nonprofits that employ disabled people at a special wage that is at or below the statewide minimum are worried that they would not be able to cover their increased costs. They said layoffs would disrupt their staff-to-client ratios and lose them clients. Some franchise and small business owners, such as bookstores, said that their prices were set by publishers and national brands. As a result, they cannot raise prices to cover increased labor costs. One small family-run restaurant worried that without an exemption for young people, it would no longer being able to afford to pay summer youth workers. Some immigrant owned businesses insisted that they did not want a $15 minimum wage increase because they cannot financially support the increase in labor cost.

You often here it said that if these businesses can’t afford to pay their staff a “living wage” then they  shouldn’t be in business. But “they” isn’t the rich boss of U.S. Bank or Wells Fargo. It is, as the Citizens League report shows, 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.

It is easy for a city mayor to wave a pen and decree that these people will have to pay this or that from now on. But it is these struggling small-business people who have to do the really hard of work of trying to deliver on the politician’s promise. Let us not kid ourselves otherwise.

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

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Comments (16)

  1. Submitted by Pat Berg on 03/07/2018 - 08:46 am.

    Struggling

    So apparently the people trying to get by on less than a living wage are NOT “struggling”? Or is it just that their struggles don’t matter as much?

  2. Submitted by Thomas Pavey on 03/07/2018 - 09:27 am.

    So what?

    First off. I clicked on the link for your “think tank” which appears to be nothing more than partisan opinion pieces.

    The reality is that ANYONE that works full time in America deserves a livable wage. I would go a step further, ANYONE that works full time in America deserves a livable wage, access to health care, and the ability to retire at SS age 67. This can happen in America through pension, personal retirement, or SS. For the long term stability of our country, this has to happen. Without it, we have poor/homeless that need to bailed out by other working taxpayers. So, in your effort to protect business owners, you are failing to protect the people that are being as indentured servants and the average Taxpayer.

    You also talk about big business paying enough. You picked financial and insurance companies as your example. Walmart and Target are not providing for their employees in an adequate manner either. I would guess a large number of them are NOT payed a minimum wage and are not provided health care.

    If you were worried about a level playing field, how about you complain about the fact that big companies get massive tax breaks and other incentives to open shop, while the small businesses have to compete without that? How about you complain about the economies of scale involved in purchasing power, putting the small businesses at a disadvantage?

    The reality is that small businesses are hurt big time by conservative ideals that are euphemistically thrown under the label of “free market.” This is not a level playing field. If small businesses were given the same benefits of big business, then they wouldn’t need to worry about recouping costs from their employees.

    How’s this for some ideas:
    1. Big businesses are required to supply all employees with 50% health care coverage for ALL part-time employees and 100% for all full time.
    2. Small businesses are allowed to buy into Medicare
    3. Laws in place to prevent states from providing unfair incentives to big businesses, which squishes local businesses.
    4. Getting rid of pension plans all together with requirements for wages that allow people to save fro retirement (you know that personal responsibility thing you conservatives like to moan about).

    This would more than level the playing field AND let anyone who is working full time actually be able to survive off of it.

  3. Submitted by Pat Terry on 03/07/2018 - 09:45 am.

    The experiement has failed

    This is the kind of dishonesty I have come to expect from the Center for the American Experiment.

    Do you really think serious minimum wage increase advocates are just looking at this as rich capitalists swimming in cash? If that were true, would the increase by graduated over time? Would different sized employers have different wages? The author of this piece chose to ignore the actual mechanics of the proposals and constructed a strawman instead.

    The large companies mentioned don’t pay higher wages because of their size. Its because the work most of the employees do is of a professional nature and pays more.

    There are real concerns about raising minimum wage for some businesses, and they should be discussed in an honest and factual manner. That isn’t what happened here with this piece.

  4. Submitted by Frank Phelan on 03/07/2018 - 10:06 am.

    The Sky Is Falling

    I’m foggy on the exact time, my guess is in the mid to late 80’s, there was a hue and cry over the cleaning of circuit boards, which was done at the time with CFCs. The industry howled that without the use of environmentally damaging CFCs, there would be no more circuit boards, and thus no more computers or electronics or those cool new cell phones that were only the size of a brick. The end of modern civilization was at hand, to be sure. And the very rising of the sun was in question.

    But something happened to forestall the Four Horsemen of the Apocalypse. One manufacturer found it could clean it’s boards with soap and water, saving on production costs. Another found that they could manufacture boards in such a fashion they didn’t need to be cleaned at all, again reducing production costs. Remarkable!

    When employers proclaim gloom and doom is at hand, I ingest that along with a very large grain of salt.

    • Submitted by Michael Hess on 03/07/2018 - 12:27 pm.

      you mean like this?

      http://www.businessinsider.com/fast-food-burger-flipping-robot-2018-3

      • Submitted by Frank Phelan on 03/08/2018 - 07:58 am.

        Neo Luddites

        What’s your point? That businesses will stop automating their operations if we leave the minimum wage where it is forever? Are you happy with merely implying that, or do you want to double down and state that expressly? Will you support legislation and policies to protect cab and truck drivers from autonomous vehicles?

        And to think that conservatives like to denigrate the economic knowledge of progressives. If you think burger flipping machines are to be feared, you’ll be horrified by AI, which hasn’t even gotten started yet.

        • Submitted by Michael Hess on 03/10/2018 - 04:21 pm.

          of course not

          You missed the point of the commenter to which I was replying. They were hypothesizing that businesses will predict gloom and doom when something they consider a headwind or challenge occurs, but they find a way around it, and the examples in the comment were largely technology based.

          Using this argument to dismiss the concerns that the rising minimum wage will have some negative impact leaves you open to the chance that technology will, here as well, be part of the solution and that may not be an outcome that proponents of minimum wage increases would embrace.

          I don’t know the inflection point for when labor becomes a large enough component of cost that it becomes worth automating, obviously it varies by industry, but it would be naive to think that increased labor costs wouldn’t accelerate that transition.

  5. Submitted by Donald Hulson on 03/07/2018 - 10:41 am.

    Citizen League Report draws no conclusions

    The report used to justify the author’s argument that small businesses and nonprofits suffer in a living wage environment does not, in fact, draw any conclusions. It only raises questions based on the concerns of the contributing individuals. In fact it clearly states that it’s only goal is to raise questions. It contains no research on the effect the minimum wage has had in communities where a living wage has been instituted and outside of some demographic data is composed entirely of anecdotal concerns.

    We should have a conversation about the facts. The concerns raised in the Citizens League report should be addressed. However, it is intellectually dishonest to claim, as the author does, that the report even answers any questions much less supports any particular outcome.

  6. Submitted by Frank Phelan on 03/07/2018 - 10:49 am.

    And One More Thing

    From whom does the Center For The American Experiment get it’s funding? To whom is it beholden?

    Inquiring minds want to know, and its web site is silent on the matter.

  7. Submitted by John Evans on 03/07/2018 - 11:48 am.

    Can’t you find better conservative commentary?

    John Phelan can’t make an argument to make that doesn’t require him to build a straw man to cut down.

    Who claimed that “Allina Health, Ecolab, Health Partners and Securian” pay “the majority” of their workers less than $15 per hour? Nobody did; that’s a conservative propagandist’s fantasy.

    The people who empty waste baskets and vacuum floors at night in the offices of the afore-mentioned companies probably aren’t making $15 per hour. They usually are employed by cleaning companies, and most of them get no benefits or sick leave whatever.

    I haven’t heard anyone deny that phasing in a $15 minimum wage would be painless. Much of the adjustment will happen in retail, small business and wherever unskilled labor is used. But we’ve done the experiment of letting the value of the minimum wage decline, and the results have not been good.

    We need to raise it now, in a period of low unemployment so the economy can adjust as painlessly as possible.

  8. Submitted by Adam Miller on 03/07/2018 - 12:38 pm.

    Research

    There’s empirical research on this subject available (surely this economist knows that). Why is he instead offering non-scientific interviews about people’s feelings? Is it because the actual research doesn’t support his position?

    Yes, we know that change scares businesspeople. It scares everyone. The question is whether the things they fear actually come about when we raise the minimum wage. For the most part, they do not.

  9. Submitted by RB Holbrook on 03/07/2018 - 12:44 pm.

    Work, Its Advocates, and Its Alternatives

    The overwhelming majority of people who work do so to earn enough money to support themselves and their families (Mr. John Phelan very likely falls into this category). It would seem logical, then, that workers would expect a living wage–one that is, at the very least, sufficient to take care of basic human needs. This is an expectation even of those working at the lowest-paying jobs. The person selling smokes and lottery tickets behind the counter at a convenience store still has to live. She may want a better job–for all we know, she could be trying to make that happen when she is not running your credit card through the machine–but telling her to move to the Iron Range and get one of those truck driving jobs that has Warren Buffett reconsidering his career choices isn’t going to feed her or her children today.

    The low wage workers conveniently ignored in the article are trying to stay alive, and they are trying to do so in the manner to which the gang at the Center for the American Experiment gives lip service–hard work. Poor people (God forbid they should say “lower class” out loud) are supposed to work. What are their rewards supposed to be? A pat on the head for doing the right thing by intellectual scolds? A cameo role in some inspirational yet patronizing story about the aspirations of the poor?

    The alternative to work, of course, is dependency on government benefits. The conservative side of the country, as well as more than a few on the liberal side, are prepared to tell us at great length why this dependency is so bad (it makes people dependent, which seems to be regarded as worse than dressing a tautology as a serious argument). What, though, happens if the only jobs realistically available don’t pay enough? It’s continued reliance on government benefits. More than half of the on-disabled working age adults who receive SNAP benefits are working. Three-quarters of Section 8 Housing Voucher tenants who are not disabled or elderly work, or have work requirements. A job does not always equal an end to dependency.

    If we want people to work for a living, we have to make it possible for them to live while working. Standing on the sidelines and exhorting them to do better is, at best, meaningless.

  10. Submitted by Paul Udstrand on 03/09/2018 - 11:02 am.

    Seriously?

    We’re seeing an awful lot of specious commentary here that claims to find issues with the minimum wage proposal.

    I don’t mind seeing different perspectives but this piece ( Like so many others originating at the CAE) is simply facile. First Phelan manufactures an imaginary opponent to argue with, and then makes a series of false claims, not the least of which is that he’s got a link to some “report” that supports his position; there is no report, just a web page with some links and invitation to take a survey.

    We’ve seen the CAE produce false claims before, for instance during the voter ID “debate” they made a series of unsupported and false claims about voter fraud and this article looks like it’s ripped from the same play book, which is I fear the only playbook CAE has.

    I think most of us see the debate game that Phelan is trying to play but we’re not gaming here as far as I know. Don’t opponents of living wages have anything of substance to offer?

    I went back and changed my CFE’s to CAE’s.

  11. Submitted by Nick Foreman on 03/07/2018 - 02:32 pm.

    Surprise, surprise, surprise

    Another typical CAE production. MP should charge these opinion pieces as ads

  12. Submitted by James Hamilton on 03/07/2018 - 03:05 pm.

    The Art of Persuasion

    rarely emphasizes honesty.

    Mr. Phelan’s argument is no exception. He comes out of the gate subtly reminding people of the aphorism, “There ain’t no such thing as a free lunch”, suggesting to readers that
    proponents of a minimum wage (ANY minimu wage) are unrealistic, even ignorant in their pursuit. His argument gets no stronger or more clever as it progresses.

    No one with half a brain thinks money comes from nowhere or that a free lunch can be had. Every economic change is likely to come at the expense of someone or some group of people. True win-win situations are far rarer than some think. That doesn’t mean we should avoid all economic change. In fact, I’m sure Mr. Phelan wouldn’t advocate it. He simply doesn’t like this particular change. As with others who have commented, I don’t trust his motives for opposing an increased minimum wage. Why? For one thing, he’s presented what on its face is a populist, little-businessman case, without providing anything more than anecdotal information on people’s fears. He hasn’t even offered experiential anecdotes, much less any data on which one might base an opinion.

    Yes, some small business people fear increased wages. Yes, some small businesses may cease operations in the face of increased minimum wages, as they see that the owners current investment will not be able to maintain its past rate of return. They will move their investments elsewhere, just as classic economic theory would suggest. Right, Mr. Phelan?

    I doubt very much whether Mr. Phelan believes most small bookstore owners can compete with Amazon in an age of discounted marketing, high volume pricing, and digital media. Nor do I believe he’s here to look out after the interests of the immigrant business owner competing against two national giants. He knows better than I that they will stand or fall on their ability to differentiate themselves in areas in which they can compete. They cannot compete on price and survive.

    The truth of the matter is that Mr. Phelan opposes all minimum wages. You can take his word on that:

    https://www.americanexperiment.org/2018/02/minimum-wages-bad-public-policy/

    I have no problem with anyone who presents their position honestly and in a legitimate fashion. I can’t abide bottom-feeding eels who wrap their arguments in pseudo-sympathy for the little guy.

  13. Submitted by Joseph Musco on 03/07/2018 - 10:00 pm.

    The actual Citizens League report

    For a 2 adult (1 FT + 1 PT) + 1 child household Ramsey County, a wage of $19.48/hr is necessary to meet basic needs cost of living.

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