Report: Minimum wage hikes caused job losses in Twin Cities

Despite the wage increases, the Minneapolis Fed says that total earnings among full-service and limited-service restaurant workers may not have even changed.

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The Federal Reserve Bank of Minneapolis, also known as the Minneapolis Fed, published a report this week on the initial effects that minimum wage hikes have had in the Twin Cities.

Their report examines data from the first quarters of 2018 and 2020, prior to the emergence of the COVID-19 pandemic. The sector most affected by an increased minimum wage was the restaurant industry, including both full-service and limited-service restaurants.

Analysis found that the city’s full-service restaurants lost an estimated 1,700 jobs while limited-service restaurants lost 1,200 over the two-and-a-quarter years examined. Respectively, that’s 12% and 18% more job losses than what would have occurred if a minimum wage hike was not implemented.

Despite the wage increases, the Minneapolis Fed says that total earnings among full-service and limited-service restaurant workers may not have even changed, or at least not enough to be deemed “statistically significant.”

The only sector in which total earnings were positively impacted was “other services.”

In the city of St. Paul, the Minneapolis Fed noted several “anticipation effects” of a potential wage hike ordinance. The law was not implemented until two months prior to COVID, so the study only analyzed data in the anticipatory period between the first quarter of 2018 and the last quarter of 2019.

According to the report, there was a notable decline in jobs, hours, and total earnings in full-service and limited-service restaurants, as well as a decline in hours and total earnings in the retail industry.

The impact on St. Paul restaurants was significant enough that the findings were “particularly large compared with other studies of minimum wages.” The Minneapolis Fed said there should be further research into the “sensitivity [of certain businesses] to actual or imminent increases in labor.”

John Phelan, economist at the Center of the American Experiment, reacted to the report by saying that these results should set off alarm bells for Twin Cities legislators.

“By hiking the minimum wage, lawmakers in Minneapolis and St. Paul thought they could make low wage workers better off with the wave of a magic legislative wand. They can’t,” he said. “Wages are prices and like any other price they reflect market forces. We can continue to pursue magical thinking in the realm of public policy, or we can acknowledge this fact.”