Businesses push back on minimum wage study

Skepticism that benefits of higher wages won’t come with a hard hit for business

While many business owners responded skeptically to a city minimum wage study, Minuteman Press franchisee Frank Brown said starting employees at $15 has been good for business. Photo by Dylan Thomas

A city-commissioned study that found raising the local minimum wage would benefit workers of color with little downside for employers drew skeptical reactions in October from portions of the Minneapolis business community and some members of the City Council.

In a report delivered Oct. 5 to the Council, a team of economists from the University of Minnesota found 47,000 of the city’s 311,000 workers, or roughly 15 percent of the Minneapolis workforce, would feel the impact of a minimum wage hike to $12 an hour. A $15 minimum wage would impact about 71,000 people, or almost 23 percent of the workforce.

Those predicted to benefit from rising wages are disproportionately workers of color. Even though the Minneapolis workforce is two-thirds white, half of those predicted to feel the effects of a $15 minimum wage are people of color. Latino and black workers would benefit the most.

The effects of rising wages would be felt most strongly — by both workers and their employers — in industries where lower wages are most prevalent, including retail, restaurants, health care and childcare.

“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,” said Ginger Jentzen, executive director of 15 Now Minnesota, in a statement. “The study counters the big business scaremongering about unemployment, price increases and business closures.”

Some business owners are already on board, including Frank Brown, a Minuteman Press franchisee in Minneapolis. Brown raised the starting wage at his Uptown shop to $15 not long after buying the business a year-and-a-half ago. He said it was “the right thing to do.”

“People can’t survive on less than $15 an hour,” he said.

The change lowered Brown’s profit margins, but he said the business is doing better overall.

But the president of the Southwest Business Association, Matt Perry, said the report “just doesn’t jibe with what we’re hearing from people in the business community, at least in this part of town.”

“Businesses have said that there are definitely going to be costs. They’re going to be raising their prices,” Perry said. “Restaurants aren’t talking about a 5-percent increase, but higher.”

Skeptical reactions

When adjusted for inflation, a $15 minimum wage in 2021 would be higher than any minimum wage ever offered in the state, while a $12 minimum wage would be similar to the federal minimum wage of the 1960s, the researchers reported.

According to the 200-plus-page research paper, the anticipated effects of a $15 minimum wage include an increase in take-home earnings for low-wage workers of 10–30 percent — even if employers cut hours in response to higher wages. Restaurant workers are at the high end of that range.

The models used by the research team predict higher wages won’t lead to significant layoffs and that operating costs for businesses will rise, at most, 5.4 percent under the $15-an-hour scenario. They predict that restaurant owners will pass on over half of higher payroll costs to their customers, but the tab for a $25 meal would only rise as much as $1.66. On average, restaurant prices would rise less than 5 percent. (See correction, below.)

“When you already are paying $6 for a single-scoop ice cream cone, how much more are people going to be willing to pay?” a skeptical-sounding Lisa Goodman asked the research team when they presented their findings to the Council.

The City Council member said a 5-percent increase in operating costs could force businesses in her Ward 7 to close. Noting two of its authors had publicly advocated for raising the minimum wage, Goodman questioned the objectivity of the report.

“I was really hoping we would get a study back that showed us the cost-benefit was, how it would affect businesses, but when I see a report that basically says there’s no negative to businesses at all, it’s hard for me to consider the report completely unbiased,” Goodman said.

Jonathan Weinhagen, the new president and CEO of the Minneapolis Regional Chamber of Commerce, said he “share(d) some of the skepticism with regards to some possible bias” in the report. One option the chamber will consider is bringing in another economist to go over the data, Weinhagen said.

While the Minneapolis Downtown Council has not taken an official stance on the $15 minimum wage question, the business association’s president and CEO, Steve Cramer, said he, too, was “a little incredulous” at the report’s findings.

Cramer said the “main concern” is a go-it-alone approach by the city that would push its wages above the rest of the region. There were similar concerns raised when Minneapolis this year became the first city in the state requiring employers to offer earned sick and safe time to most workers within city limits.

Cramer said, “I hear from people whose job it is to bring companies in to fill these buildings downtown, and there’s concern about: What are we walking into in Minneapolis that we wouldn’t be facing other places in the region where we’d have choices to locate our company?”

Business owners respond

“If anybody came to me today and said, I want to open a business in Minneapolis, I would say run,” said Julene Lind, the owner of Nicollet Ace Hardware, who has about 20 employees. “As fast as you can run, go to the outskirts (of the city) as close as you can get and go (open a business) there.”

Lind, who has operated the business near the corner of 38th & Nicollet for three decades, said she already pays almost all of her employees several dollars an hour above the minimum wage. Minimum wage is “a line that people gauge their success at,” she said, and if that line creeps up, her employees will want raises to stay well above it.

“They don’t want to be $1 over minimum wage, and they don’t want to be back at minimum wage,” Lind said. “… They worked hard to be above minimum wage.”

If a $15 minimum wage passed the Council, Lind said it would no longer be worth it to her to hire and train high school-age employees, something she has considered her duty as a business owner. It could lead her to cut back on staffing by several employees and strictly limit overtime hours, she added.

Mark Van Wie, owner of The Pig & Fiddle restaurant near 50th & France, said payroll typically accounts for a third of a restaurant’s expenses, so any change in the minimum wage has a significant impact. Van Wie anticipated having to cut back on hours for his 22 employees at the restaurant, and said menu prices would likely rise.

A $15 minimum wage that doesn’t extend beyond city limits could make it harder for border businesses like Van Wie’s to compete, he added. The pub’s front door is just a few steps from Edina.

“People have a choice every day to cross the street,” Van Wie said. “Whether 50 cents or a dollar an item is enough to make them change their buying habits, it’s hard to say.”

Brown, the Minuteman Press franchisee who’s already paying a $15 starting wage, said businesses have to adapt — and they will.

“That’s what I’m doing,” he said. “I’m just a little bit ahead of the curve in terms of what, really, is the right thing to do.”

Brown said paying what he called a “livable wage” was good for the community. And it has strengthened relationships with his six employees, who all saw a pay bump when he raised the starting wage.

He hasn’t raised his prices, laid anyone off or cut hours for his employees, so the increased payroll means his business makes a little less profit.

“I’m just not Mr. Greedy (saying) that, Oh, I have to make a million dollars,” he said.

Gathering feedback

The City of Minneapolis plans to gather business and community input on a potential minimum wage ordinance over the next few months.

A community engagement plan was outlined in October, shortly after the release of a research paper examining the potential impact of an increased minimum wage in Minneapolis. The city plans multiple listening sessions and meetings on the proposal between November and February, although specific dates have yet to be announced.

A specific policy recommendation is expected to go before the Council in mid-May, and a vote on a minimum wage ordinance could occur sometime in the second quarter of 2017.

To download the minimum wage report or read a summary of the findings, or to find out more about the city’s plans for community engagement, go to minneapolismn.gov/minimumwage.

 

CORRECTION: A previous version of this story inaccurately described the predicted rise in restaurant menu prices if a $15 minimum wage is enacted as less than 1 percent. The study predicts today’s $25 meal would cost between $0 and $1.66 more in 2021. Across the restaurant industry, price increases are predicted to average less than 5 percent.