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Study suggests most Minneapolis businesses wouldn't be harmed by citywide $15 minimum wage

Activists gather at a Minneapolis fast food restaurant on Sept. 12
MinnPost photo by Peter Callaghan
Activists gather at a Minneapolis fast food restaurant on Sept. 12 prior to a march for a higher minimum wage ordinance.

A study commissioned by a Minneapolis City Council once reluctant to go it alone in implementing a $15-an-hour minimum wage might now be used by council members to justify that very act.

When it was commissioned last fall, the study looked like a way to put off a controversial plank in an agenda designed to help lower-wage workers. At the time, Mayor Betsy Hodges — and an apparent majority of the city council — opposed Minneapolis having a higher wage floor than any other city or county in the state.  

The council had already shelved a fair-scheduling ordinance that would have required employers to give advance notice of work shifts. And it was turning over the drafting of a paid sick leave law to a work group. Commissioning a study to look at the impacts of a city-only minimum wage increase pushed that issue off as well.

“If there were seven votes to create a minimum wage in Minneapolis only, we’d be doing it,” Council Member Lisa Goodman said last fall. “So I’m wondering, why spend $175,000 for a study? What is that, a political out?”

The results of the study, which eventually cost $147,000, likely won’t change anyone’s mind. It identifies clear benefits to an estimated 71,000 workers in the city who would get raises via a $15 minimum wage. And it sounded no sirens regarding the impacts on businesses that would pay it. As city director of Economic Policy and Development David Frank said this week: “Both sides will find material in this report which will prove their point.”

So if not the study results, what changed minds of council members to the point where there is now likely a majority of the 13 members in favor of a city wage ordinance?

It might be the intervening year in Minneapolis politics. After voting to block a November ballot proposition that would gradually raise wages in the city to $15, the council in early August ordered city staff to bring back an ordinance by spring. The vote was 9-2, with likely supporter Cam Gordon absent when the vote was taken. That’s not only a majority, but one large enough to override a mayoral veto.

Backers of the $15 minimum wage charter amendment, though upset that the city successfully kept it off the ballot, say they think the signature drive pressured the council to act on a minimum wage ordinance — and they intend to hold the council to its pledge.

A fuller picture of minimum-wage workers 

The study, led by the Roy Wilkins Center for Human Relations and Social Justice at the University of Minnesota, looked at the economic impacts of both a $12 wage and a $15 wage. It also was to look first at a wage hike in Minneapolis alone and then at the impacts if wages were raised across Hennepin and Ramsey counties.

With plenty of caveats, the study suggests that low-paid workers would benefit — without significant harm to the employers that would be required to hike pay. “You don’t see an elimination of poverty, even though our findings do show that folks in poverty who are currently working would be disproportionately affected by this proposal,” David Cooper, an economic analyst with the Economic Policy Institute, which helped with the study, told the council Wednesday.

The report found that of the 311,000 workers projected to work within the city limits by 2021, 47,000 would see a raise in wages if the city set a $12 minimum wage. At $15 an hour, 71,000 workers would benefit. Of that pool, it’s expected that about 33,000 would be living within the city, with the rest commuting from outside Minneapolis.

The study also presented a more-detailed picture of minimum-wage workers in Minneapolis. Half of the workers who would benefit are white, half are people of color. But since minorities make up a smaller segment of the overall workforce, the impact would be more widespread in communities of color.

A quarter of minimum wage workers in Minneapolis are students, while half of those who would be affected by a new wage work full-time. And majority of minimum-wage earners in the city are employed in three sectors: restaurants, retail and non-hospital health care, while single largest group is single and without children (which is also true of the overall workforce). Another 13 percent are married without children, 11 percent are single parents and 15 percent are married parents.

But the U of M researchers, applying methodology from previous studies, could not find a measurable impact a new minimum wage would have on employment. They did find that a $12-an-hour wage would increase business operating costs between 0.1 percent to 2 percent, while a $15-an-hour wage would bump such costs anywhere from 0.1 percent to 5.4 percent. But the researchers asserted that there are also financial benefits to businesses, including lower turnover costs and better productivity from workers who remain on the job.

“One difficult thing to interpret about this reduction in turnover rate is that there is a cost savings associated with this. However, it does not get realized in the normal balance sheet … whereas an increase in the minimum wage would,” said Thomas Durfee, a U of M PhD student who was part of the study team.  

Restaurants would be the most-affected businesses, likely being at the top end of the possible range of cost increases. But the study claims that more than half of the increased costs could be passed on via higher prices; it calculated that a $25 meal would be increased by $1.66 once a $15 wage kicked in.

A disconnect with small business owners? 

Goodman said she thinks the study underestimates the impact on businesses, especially restaurants, where an increase in costs of 5 percent might be the difference between survival and failure.

“I was really hoping we would get a study back that shows us what the cost/benefit was, how it would affect businesses,” Goodman said Wednesday at the city council’s committee of the whole meeting. “But when I see a report that basically says ‘There’s no negatives to businesses at all,’ it’s hard for me to consider a report completely unbiased.” She then asked the members of the research team who have expressed opinions in favor of raising minimum wages to raise their hands. Two did.

Council Member Linea Palmisano
MinnPost file photo by Terry Gydesen
Council Member Linea Palmisano

Council Member Linea Palmisano, who said she would prefers a countywide wage, asked whether the study identifies how a higher minimum wage in Minneapolis would impact a business that competes with businesses outside the city.

The researchers concluded that it wasn’t possible to determine whether businesses inside the city would relocate because of the higher minimum wage, noting that it is impossible to “fully untangle the city’s economy from the broader regional economy.”

Council Member Jacob Frey, one of the authors of the staff direction that set the staff on the path to crafting a minimum wage amendment, asked whether the city ordinance could have different rules than the state’s minimum wage law. Specifically, Frey asked whether the city could include a so-called tip credit on the incremental wages between the statewide minimum wage and whatever the city sets.

Tip credits allow an restaurant owner to pay a lower hourly wage and use tips to guarantee that a server makes at least the minimum wage paid to non-tipped workers. Minnesota’s minimum wage law does not provide for a tip credit, so a restaurant server must be paid the minimum wage in addition to whatever tips are collected during a shift.

Seattle, Frey noted, has a tip credit in its local ordinance even though Washington state’s minimum wage law does not have one. After the meeting, Frey said he has no proposal regarding tip credits and is only asking questions for now.

Ginger Jentzen
MinnPost photo by Kristoffer Tigue
Ginger Jentzen

Ginger Jentzen, the campaign director for the $15 Now effort, which collected signatures seeking to put the issue on the November ballot, said the report validates much of what she and other members of the coalition have been saying about low-income workers.

“This report shows that passing a $15 minimum wage by 2021 will be a tremendous step to reducing poverty in Minneapolis, and would especially provide economic opportunity for women and workers of color,” she said. “The study counters the big-business scaremongering about unemployment, price increases and business closures.”

Matthew Perry, president of the Southwest Business Association, isn’t conceding that there is majority support on the council for a minimum wage ordinance. “There seems to be a disconnect from what our small local business owners are saying to us and what was presented today in terms of impact to the cost of doing business and employment strategies,” he said.

“As with fair scheduling, we’re encouraging our members to have conversations with their council member,” Perry continued. “Council members are very sensitive to how business owners in their ward are feeling, how their businesses are doing.

The city staff will now begin implementing an “engagement plan” that includes listening sessions and meeting with business, labor and community groups. It expects to draft recommendations during early spring and present them to the city council next May.

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Comments (7)

Misleading Headline

The study doesn’t suggest any such thing. First, a typical full service restaurant averages about 4% net profit. The $15 wage could very easily wipe that out. Second, what about those making $15 now? When the minimum wage workers achieve parity, the higher paid workers are going to want something greater than $15. Finally, on what basis do they conclude that costs could be passed on to the consumer with no consequence? I work with small businesses every day in Minneapolis, and can anticipate what a train wreck this will be for many business owners.

Just Wondering

Where in the study to you see the figures you're quoting?

Increased Costs

He wrote that the wages could increase business operating costs anywhere from 0.1 percent to 5.4 percent. And that restaurants would be at the high end of that range.

Yes. And?

That doesn't make the headline misleading. It means you disagree with the conclusion of the study.

Interesting

As an old guy, retired, living on a fixed income, I'm a little bemused by the apparent panic among at least some members of the city's business community when presented with the possibility that their employees might earn a minimum wage high enough to actually live on.

Apparently, the only economic status that counts is that of the business owner.

Given the relatively short lifespan of many restaurants, I'd suggest that a 4% annual return points to either poor management, or a business model that simply isn't going to work. Acquaintances I've had in the past in the restaurant industry have told me that even twice that rate of return would be considered "modest."

If I purchase

lets say a $7.00 meal at a fast food restaurant, I would welcome paying the extra quoted 5% price increase, .35 cents, if the employee were making $15./hr.

Do you really need a study?

If a small business owner employs 5 workers and pays them $10 an hour for 30 hours a week his cost per employee is just north of $15,000 a year. When he pays them $15 an hour that cost goes north of $20,000 and the small businessman goes from making $60,000 to $35,000. Most small businesses don't make millions like some folks seem to think. It is strictly math, not some study that lets you know there will be changes in how many employees are hired or how many new businesses start versus go out of business with a jump to $15 an hour.

As far as 4 points on your money, there are many years that is a good year. Small businesses fluctuate a great deal and who ever says that you are guaranteed an annual return of X percent on your investment, most likely never ran a small business. That is why folks who lost one good paying job in the recession work 2 jobs today (that is considered job creation in our current job numbers) Even if you make $15 an hour with a 40 hour work week you are just north of $25,000 a year. Not sure how you feel but that is not going to raise many families in my book.