The push to raise the minimum wage to $15 an hour in both Minneapolis and St. Paul has successfully boosted the average worker’s hourly pay in both cities, but it has also led to sharp drops in the numbers of available jobs and hours worked, new research from the Federal Reserve Bank of Minneapolis has found.
Many economists have reached similar conclusions about minimum wage increases in the past. Still, the size of the impacts the researchers measured — by comparing Minneapolis and St. Paul to data culled from other Minnesota cities from 2017 through 2021 — were eye-popping, especially in low-wage industries.
Take Minneapolis’ retail sector, for example: The minimum wage increase led to 28% fewer retail jobs than researchers would’ve expected from a similar city during the same five-year period. By this comparison, Minneapolis also saw a 20% drop in hours worked and a 13% dip in aggregate worker earnings.
Across St. Paul’s restaurant industry, the city’s 2018 minimum wage hike was responsible for drying up nearly one-third of available jobs, the study found. In “limited-service” (fast food) restaurants, both hours and earnings fell by more than half after the increase took effect.
“These were larger effects than what even we expected — though we had no idea before we went into the study what we would find,” said co-author Anusha Nath, a senior research economist at the Fed. The research, which Nath conducted with two University of Minnesota economists, has yet to be published in a peer-reviewed journal.
Across all industries, both cities saw hourly wages increase by an average of less than 1% and a roughly 2% drop in the number of jobs. The wage hikes accounted for the loss of an estimated 5,000 jobs in Minneapolis and another 3,800 jobs that dried up in St. Paul, Nath said in an interview.
The papers could become new fodder for groups who opposed the Twin Cities’ push for the $15 minimum wage — a wage floor that some progressives and labor groups argue still isn’t high enough to ensure working class families can make ends meet.
“The pandemic showed that the workers we deem ‘essential’ are often the people who are paid the least, with the most precarious schedules, and they often work for big corporations who are now seeing skyrocketing profits,” Minnesota AFL-CIO president Bernie Burnham said in a statement. “Raising the minimum wage puts money in the pockets of the lowest paid workers, often women and people of color.”
“Minnesota’s economy is booming and our unemployment is low,” continued Burnham’s statement, which was co-signed by a consortium of other labor unions. Minnesota’s unemployment rate is under 3% and remains below the national unemployment rate.
Skeptics have wondered whether forces beyond the minimum wage increases in Minneapolis and St. Paul — like the COVID-19 pandemic and shocks to local businesses from the rise of remote work or the civil unrest after George Floyd’s murder — are still skewing Nath’s results, despite her team’s attempts to weed these factors out of their analysis.
But Nath said her team’s analysis does control for the effects of both the pandemic and civil unrest.
Researchers compared both Minneapolis and St. Paul to data pulled from ZIP codes across Minnesota cobbled together into a “synthetic control” — essentially, statistical alter-egos of the Twin Cities where minimum wage increases were never enacted, that can be used for comparison purposes.
They compared the Twin Cities to others across the U.S. that experienced similar pandemic lockdowns.
They also analyzed the effects of the minimum wage hikes on similar businesses within ZIP codes in the Twin Cities and theorized that civil unrest would’ve affected most businesses within a neighborhood in comparable ways. Each analysis yielded a similar conclusion.
These findings came from a period when the minimum wage in each city was not yet $15 an hour.
Minneapolis and St. Paul’s minimum wages are still increasing each year. Minneapolis will require all businesses to meet the new minimum wage — $15.19 per hour, which will be adjusted for inflation once a year — by next January. All except the very smallest St. Paul businesses will follow suit by 2026.
During the time period the Fed was studying — from 2017 through 2021 — Minneapolis’ minimum wage increased to $12.50 for firms with fewer than 100 employees and $14.25 for larger firms. St. Paul was rolling out wage increases on a similar progression.
Still, even during this study period, Nath pointed out this increase already represented a substantial increase in both cities’ minimum wages — a 50% rise in Minneapolis and a 29% increase in St. Paul. For low-wage workers, the impact was even more profound: The median fast-food employee in the Twin Cities was earning $11 before the ordinances took effect, meaning that at least half of these workers saw their wages increase. This, Nath said, helps explain why the Fed’s researchers were able to attribute so many job losses to the minimum wage increase.
“This was a huge change,” Nath said.
Nath unveiled the papers at the Minneapolis Fed’s downtown headquarters during a conference featuring national experts on the economics of minimum wage hikes.
At the conference, David Neumark, an economist at the University of California, Irvine, presented an overview of current research, arguing that most economists have concluded that raising the minimum wage has a negative effect on employment.
“I really think the debate about whether minimum wages cost jobs should be over,” said Neumark — but he also added: “That doesn’t mean that minimum wage is a bad idea, right? It means there’s a cost. It means we have to think about trade-offs.”
These trade-offs were a key theme of the conference’s first day.
Another expert — a UCLA economist affiliated with the right-leaning Hoover Institute — suggested an expansion of the earned-income tax credit would lift more families out of poverty. Critics reject this idea as a handout to big corporations that could relieve pressure on businesses to raise wages for all employees.
Other experts at the conference discussed the idea that a broader effort to raise the minimum wage — especially at the federal level, which continues to mandate a $7.25-an-hour minimum — might have benefits that the job numbers don’t capture. It’s possible that higher-paying job opportunities could create savings in government-funded welfare or health care programs, for instance.
“Somebody who loses their job because of a minimum wage increase is going to find another job,” said UC Berkeley economist Michael Reich. “Probably not right away, they’re going to work fewer weeks per year — but they’re not going to be permanently unemployed.”
$15-an-hour supporters remained staunch in their defense of the minimum wage ordinances ahead of the release of the new Fed research.
“We need to always make sure the workers … are being paid wages that ensure their families can thrive,” said the AFL-CIO’s Burnham, “which is why we continue to be champions for raising the minimum wage and indexing it to inflation across the state.”
Editor’s note: This story has been updated to correct misspellings of Anusha Nath’s name.