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.
This is what happens when you give political power to clueless leftwing activists. Fewer jobs, more people in poverty. The minimum wage should be $0. Let the market decide what your labor is worth, not economics-illiterate politicians and activists.
We’ve let the markets decide. That’s why we have unaffordable life in this country with some of the worst wealth inequality in the world, with most of our industries controlled by just a few corporations, such as the meat industry that’s controlled by 4 corporations…no longer a free market situation, but monopolies.
If you have a full time job that pays $7.50 an hour, you’re still in poverty. I don’t think your argument makes any sense. Which is probably why we no longer have to put up with Republicanism in Minnesota. Liberals just have the facts on their side.
Well the other side to that is why should those of us in the middle class subsidize housing, health care, etc when businesses especially big ones won’t pay a fair wage? The other option is to place higher taxes on those businesses.
Pretty rich for you to call others economically illiterate while advocating for the abolishment of the minimum wage. NAFTA was a disaster for Americans because suddenly a significant part of the workforce was competing with countries that paid starvation wages. This is what some economists refer to as “a race to the bottom.”
Yeah, there was a pandemic and massive social upheaval, so I’m going to take this with a big grain of salt, but it is contrary to the Dube (and others) results showing that raising minimum wages can have positive effects on employment via increased consumption of workers with more resources.
The debate is far from over.
Disappointing wages are considered inflationary but not exec salaries and profits.
Perhaps the best approach is to require a certain percentage of the profits to go to the workers.
Required by who? The Politburo?
Dennis, Robin Hood will redistribute the wealth.
The trend in most countries is to work fewer hours for the same pay, with wages increasing to make up the difference. Some go from 40 to 33 hours, some go from 48 to 40. Is working fewer hours bad for the employee if their pay and benefits don’t drop. When workers are paid less than in costs to live and get limited benefits, the government big business is on the hook. We exempt small business, but do not need our tax dollars used to subsidize big business that push up profits and executive compensation at the expense of their staff.
Hard to take the findings of this report seriously given the context of the last few years, even if they tried to control for the many, various impacts of the pandemic. There are still other uncontrolled factors, as well, such as the general shift from in-store retail consumption to shopping online, which obviously “costs jobs.” But really the issue with this whole thing is the framing. If a company is forced to pay higher wages, instead of these fast food and retail conglomerates giving an inch of their precious profits, they try to exploit their workers even more by hiring less people and requiring more of their incumbent workers. These companies can afford much higher than $15/hour, and their workers are more productive than they ever have been, but no one wants to question the companies themselves as their profit margins hit record highs each year.
Considering out unemployment rate is at historic lows, seems like the policy works just fine.
You need a study to figure out that if you raise minimum wages you will have less workers?? Small businessman has 5 employees, paying them $10 an hour while he makes 60k (national small business average salary) profit for the year. He is forced to pay $15 an hour by law, his options are make 40k a year himself, cut an employee or cut hours they work. Which would you do? Remember he runs the business, pays the insurance, pays the rent and takes all the risk.
60K figure looks like baloney. Even a Job Creater would go to work for someone else if that’s all they made, unless the romance of being the boss is the new oxycontin.
I believe it. A lot of small business owners I’ve met are pretty poor and do it because they have a passion for it. I knew people who were continually on government support as business owners. Even franchising a fast food place isn’t going to make you rich unless you do well and are able to expand.
You are speaking directly to Lisa Millers point.
Since the area, and the USA as a whole are both at record low unemployment, it seems the likely explanation is minimum wage workers just moved on to higher paid jobs in other sectors. Why would someone work at McDonalds for 15 dollars in St. Paul when Aldi is paying $22 or Amazon in Shakopee is paying $28 (starting) and has a free bus service to and from the warehouse? Furthermore, gig jobs such as food and grocery delivery, while often maligned, still usually wind up paying at least equivalent to minimum wage, with a lot more schedule flexibility. There are many more options than retail and food service these days.
The authors of the study should explore this theory, given that their conclusion implies we should have a higher unemployment rate.
If you can get one job at $15/hr you no longer need to take two of them at $7.50/hr. Jobs may disappear but people don’t need to have 3 jobs to make ends meet.
“…we had no idea before we went into the study what we would find.”
Glad they had an open mind yet the conclusions are all what those against the minimum wage were saying for a long time – it will kill jobs and lessen the available hours for many that still have a job.
@RB HOLBROOK – This is why politicians need basic business acumen and should not set policy based on feelings.
Why? In what world is business acumen a better predicator of a person’s value than their ability to connect and respond on an emotional level with other people? Money isn’t everything.
According to the Bureau of Labor Statistics Data, the unemployment rate in the Minneapolis/St. Paul/Bloomington area for the last year has been hovering between 2 and 3%. So even if it’s true that jobs were lost due to the minimum wage increase, it seems like we’re doing fine.
I’m not convinced, however, that the loss of jobs in this period is entirely attributable to the minimum wage increase, rather than the pandemic and the unrest of 2020. I realize the study makes a comparison with other Minnesota cities, but I suspect Minneapolis and St. Paul had more retail/service sector jobs to lose than, say, Rochester or Duluth.
Possibly the takeaway here is “don’t raise wages when unemployment is high,” but that seems kind of obvious.
The unemployment rate is important but the labor force participation rate is more important. If someone has gotten so frustrated that they’ve stopped looking for work or just decided that they don’t want to work anymore, they no longer get counted as unemployed.
Imagine you had a town with 100 people, and 10 of them were unemployed and trying to find jobs. The unemployment rate would be 10%. Now imagine if five of those people got tired of looking for jobs and decided to move into their parents’ basement. The government would now say that the unemployment rate has gone down to 5%. The people in the basement are no longer part of the labor force because they’ve given up. So the labor force participation rate goes down too. Not exactly a reason to celebrate.
According to mn.gov, Minnesota’s labor force participation rate is 7th in the nation, at 67.6%. So we seem to be doing all right by that metric as well, at least in comparison to other states.
Exactly. I take this study with a hefty dose of salt. High workforce participation + low unemployment suggests that there are simply not enough people to do the jobs. It might also be that part of all of this equation is that there’s less demand for the products and services that those jobs are providing, so the job goes away. At best, this study is looking at correlation, not causation. We’re in a different world than we were pre-pandemic. Market forces don’t look the same. We like to think that our economy was based on supply and demand, but between about 1980 and the pandemic, supply-side economics had taken over our market in the name of “creating jobs.” But really, it was just a way to drive down costs. That approach was already starting to break down before the pandemic (see, Occupy Wall Street), but the pandemic put a giant hole in the curtain. Between the clear advantages of the internet enabling entrepreneurship and the death of over a million people (anyone who wants to argue about how “old people” dying creates a shortage of workers doesn’t know how our economy works at all), we’re at a point of a reduced reliance by consumers on consumerism that we haven’t seen in decades. The powers that be don’t like it, especially when consumers are tired of being abused on both sides of the consumer coin as producers of goods and services as consumers of those goods and services. Real conservatives should be thrilled that a bunch of people started their own businesses and lots of others decided to “live within their means” when they opted out of the job market. But…there’s no such thing anymore.
Or they’re in school. Or retired. Or caring for a family member. Or they’re independently wealthy and don’t need to work. There are many reasons someone wouldn’t be looking for a job outside of “they just don’t want to work.”
This is interesting. Let’s assume the data and analysis are correct. So now what?
Seems to me, when unemployment is high, you pause any increases to allow employment to catch up to the labor supply.
During times of full employment, bump the minimum up to reduce poverty. Right now, we have too many jobs and not enough workers. Time to boost the minimum, and eliminate or reduce poverty among the working poor.
This should also ultimately enhance worker productivity. If employers are forced to pay more, they’re going to want to get more for their money. Just doing it the same old way won’t work. New tools, new processes, etc., will make those workers more valuable.
The other side of the coin is if employers are forced to pay more, they’re likely to look to technology and automation to make those workers obsolete. Everything has a price point and the cost of technologies continue to get cheaper which ultimately is the concern. Retail is increasingly obsolete post pandemic as the world is more used to online shopping, fast food automation has been increasing rapidly, the first McDonalds that is completely automated opened earlier this year in Fort Worth. Technology continually gets cheaper, at a point, workers price themselves out of the market.
As we look at the next gen of technology, drone delivery, driverless cars/cabs…it’s amazing what we can do now, but that also has a cost, and how it is going to effect, primarily, those low wage workers.
“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.” “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.” Causation is the most difficult thing to prove in a study, and these conclusions are especially specious. What five-year period included a pandemic? Unemployment remains low, so what restaurant workers are looking for jobs and can’t find them? The most common complaint I hear from owners of businesses that traditionally have paid minimum wage is that they can’t find workers. Aldi’s is offering $22 an hour because they couldn’t find enough employees at $15 an hour. In the Great Resignation, a lot of restaurant workers decided that they wanted better jobs, and they got them. So on the one hand, there are fewer jobs (because the pandemic killed a number of businesses), and on the other hand, unemployment has reached an all time low.
The organizers of this conference clearly have an agenda; they want to repeal the minimum wage rather than force employers to pay full-time employees a mere $30,000 a year. News flash: there are fewer jobs because of the pandemic, not the increased minimum wage. And workers don’t seem to care.
So I make $15 bucks an hour. I work at Walmart, for example. If I’m not living in my car, and likely ducking the insurance, if I’m organized enough, I am collecting some kind of govt aid. After all Im employed so I pass the litmus tests. For my right wing friend who hates the dole and whinges ceaselessly and moralistically about welfare and, who owns Walmart stock I am the greatest thing that ever happened. I give him a talking point and fatten his portfolio (privatize the gain -socialize the losses) all at once. Is this great country or what?
Why would you be living in your car at $15/hr? Here’s some numbers. Gross $31.2k per year. Net after SS and taxes $26801 or $2233.49 per month. 1 Br rent in new looking place in Roseville – $900. $40 phone. $50 internet. $200 for food. $290 car payment ($15k car) $100 car insurance. $50 electricity (some places you don’t have to pay). $140 car gas. $220 for health insurance (I can really seem to find ACA subsidized numbers) and $243 left over for clothes and miscellaneous expenses.
This is without a roommate, which would give you another few hundred bucks a month to use. Oh, and this is at $15/hr when you can go to just about any gas station or coffee shop and make $17-18.
If your friend had invested $100,000 in Walmart a year ago, before taxes he would have a whopping $102,547. 1/10th of what he would have made actually working at Walmart. Seems your narrative doesn’t quite fit.
Don’t forget, it’s not against the law to work over 40 hours per week. Let’s bump that $31.2k to $40k.
James, your points are well taken, except for the Walmart stock number. I was thinking much more long term. Giving credit where credit is due you must be thrifty organized person. In my life I just got a 60k doctor bill in the mail. Is this great country or what?
change losses to costs please
Jesse Jackson said that “during slavery unemployment was not a problem.”
This world. The world where anyone with something other than a headful of beans knew that raising the minimum wage to an unsustainable amount would result in a worse outcome for the people relying on those jobs.
Except, it hasn’t? They’re all still employed, at greater numbers and better wages than before. The only one’s hurt are those that proffer employment at slave labor wages. To them I say, boo hoo.
Thank you. Exactly. Even if this study is correct—and skepticism is warranted since causation is exceedingly difficult to a ascertain in the best of times let alone the middle of an unprecedented global pandemic—the argument against the minimum wage is hard to swallow. That argument is: let the market pay people nearly slave wages, so that everyone has a slave-level job. No unemployment; everything’s hunky-dory. That’s not the world I want to live in.
$15.00 per hour was supposed to fix everything. Wrong.
Republicans and conservatives (who are ALWAYS wrong ) were correct in saying that there would be lost jobs as a result of raising the minimum wage to $15.00 per hour.
Try and find a job that pays less than $15.00 per hour at the present time anyway.
The market caused those wages to rise before the government mandate even kicked in. The labor shortages forced employers to raise wages. That’s how markets work.
There’s a labor shortage because some people were given a choice during the pandemic to get the shot or get lost. They chose to leave. That’s why we have a teacher shortage, a nursing shortage, a cop shortage, an airline pilot shortage, a day-care worker shortage, and every other industry that made people choose between working and getting a dubious-at-best, dangerous-at-worst, covid shot.
Good that you finally understand. Why would I look for a job for less than 15/hr, when there are thousands on offer that pay more?
I understand that $15 an hour apparently doesn’t cut it and that no government law was needed to get employers to pay that much.
Actually the federal government raising their minimum wage to $15/hr had a significant impact on wages elsewhere in the economy. The federal government is a large employer with 1.8 million employees.
Reading the comments here one realizes that most people think small business owners are millionaires, nothing could be farther from the truth! The average salary for a small business owner in USA is 60k. Entrepreneurs love to work for themselves and are risk takers. That is why this $15 minimum wage will cause small business owners to cut staff and hours, they want to continue to work for themselves. Losing workers and hours was predicted by many people and it came as no surprise to fellow conservatives. Not surprisingly liberals were shocked!,
Then they really poor financial planners, and toxically anti-social. If one hates others so much that they’re willing to make less than the median wage, just to avoid having to listen to others ideas and opinions, they have problems far larger than the minimum wage increase.
Joe – Are risk takers and love to work for themselves.” Romance without finance is a nuisance” -Fats Waller
Of course this is what happens. As the article mentioned, decisions have trade offs. Maybe it’s worth it overall. Just accept it and move on.
The covid shot-induced labor shortage caused employers to raise wages to attract employees, which contributes to inflation which makes everything more expensive. Even when the inflation rate drops, those new wages won’t drop, the higher prices won’t drop, gas prices are stuck at $3.50+, and now you have a higher cost of living which is murder for people on fixed incomes or, because of the education shutdown, who have minimal skill sets to sell which aren’t worth much in the labor market.
The bottom line is, the government raised the cost of living on all of its citizens by implementing an ill-fated shutdown and mandatory vaccine strategy that will take years of republican governance to get over, which won’t happen now that the economics-illiterate democrats have figured out how to stay in power, much to the detriment of the citizenry.
The End
“Economics-illiterate [D]emocrats…”
The idea that the covid vaccine had anything to do with the ongoing labor shortage is abject nonsense. First, there were very few workers affected by government mandates; healthcare and some government functions. And those workers achieved 90-some percent vaccination rates. Second, to the extent private employers demanded vaccination, that’s your beloved free market at work. Third, how does covid vaccination in 2021 explain the reason such refuseniks would be out of work now? Finally, vaccination saved the lives of millions of workers, or we’d have a REAL labor shortage today!
There’s little doubt the pandemic affected the labor market; I’d say the biggest factor was people (Boomers for example) who could retire did so somewhat earlier than they had planned. And some others were able to convert to one income families.
But covid vaccine mandates as an “explanation” for higher wages today? Preposterous. This is what happens when one lets their (fact-free) political ideology determine their economic “analysis”.
“First, there were very few workers affected by government mandates”
The military alone affected thousands. Please define “very few”.
The serving military was/is already out of the civilian labor force, whose wages are the subject of the discussion. And under Tester’s absurd theory, that mandate would have dissuaded civilians from entering the military, thus keeping them available for employment.
I described the affected categories of workers, so that’s definition enough.
Still waiting for the description of “very few” as thousands were forced out of work by mandates that have now been proven worthless.
In an economy of 132 million workers a few thousand is in fact, “very few”. It’s less than 0.01%, not even a significant digit when it comes to the unemployment calculation. Plus, you’re making the mistaken assumption that people who quit jobs with vaccine mandates were blackballed from all jobs and unable to find work. It is completely irrelevant to discussions on the economy in 2023.
You do know there was never a federal vaccine mandate, right? Not from the federal government. There was an attempt at a mandate to get the vax OR get tested. Or, choose neither. Freedom of choice, really. At any rate, the courts shut that down – was it SCOTUS or that religious extremist in the 5th circuit? I can’t recall…
At any rate, a fictional federal mandate had nothing to do with people losing their jobs or exiting the workforce.
Only because the Supreme Court blocked the federal vaccine mandate. They certainly tried to.
I know these people have a lot of math skills but your model is only as good as your assumptions, and neoliberalism still governs a lot of assumptions. There are a bunch of possible confounding variables here that may not have been properly controlled for, and the fact that this analysis hasn’t yet been peer reviewed doesn’t help. Having said that, one glaring contradiction between this analysis and the real-world would appear to be ongoing employer complaints regarding short staff? Everywhere you look in both cities you see retailers and restaurants restricting hours of operation and complaining about short staff. So… are they trying to hire or not? It’s also not beyond the pale to imagine employer’s in both cities short staffing themselves in an effort in an ongoing effort to defeat the initiative, much the same way they’ve been fighting rent control. It reasonable to assume that some job loss could occur during an adjustment period following a living wage ordinance, but you have to determine whether or not the job loss your seeing is “real”, or an artifact of politics.
The same places cutting their hours of operations still have the Now Hiring signs if that helps answer your questions. There are still places with empty tables taped off since they can’t be staffed that have Now Hiring signs. Less workers means less hours of operations and less available tables.
Years ago Jesse Jackson said, “During slavery unemployment was not a problem.”
The DT’s of the world live to provoke. They watch for articles that invite extreme obnoxious conspiracy theory rhetoric, then sit back and watch with a perverted glee as reasonable folks respond to their diatribe. It’s a full time “job” for them.
It would be healthier to ignore their provocations and see if they are capable of moving on to a different, healthier “job.”
Meanwhile, all of the other developed countries
Of the world look at the USA with shock and bewilderment in how we operate with so many things including but not limited to wage disparities, preventing parents from being with their newborn and sick children, denying women control over decisions affecting their own bodies, and allowing the almost daily massacre of children with (usually) military assault weapons as we cling to what the world views as a bizarre interpretation of an outdated 18th century paragraph in a national document.
And the world gasps realizing 40 to 45% of America’s citizens support all of those pathetic positions.
A significant pay increase boosts income Of course it did, but it does far more. It took some households out of poverty. It allowed some to pay off high interest loans. It meant a birthday cake or a Christmas present.
That is called microeconomics, which is a matter of indifference to the business lobby. It also means less money from taxpayers, as with higher wages, government subsidies to supplement wages decline.
Jobs that trap people in poverty, so businesses can profit more, are addictive – and not healthy. It is funny how the wealthiest people discount the need for living wages, when some “struggle to survive” on income 10 times as high. In fact, low wage workers subsidize the lifestyles of the rich, who benefit financially from the cheap labor of the poor. Children of wealth also gain advantages when poverty stunts the potential of the children of the poor, magnifying their barriers.