ST. PAUL — Even before the city of St. Paul increased the citywide minimum wage last year, some restaurants and retailers began dropping jobs and shedding hours.
Full-service restaurants — those with wait-staff and sit-down service — saw jobs decline by 16%. Limited-service restaurants, such as fast-food eateries, saw a 27% decline.
Minneapolis, which began hiking its minimum wage two years earlier, lost nearly 3,000 restaurant jobs during the same time, according to two new analyses from the Federal Reserve Bank of Minneapolis and the University of Minnesota.
But some St. Paul retailers and food service employers actually raised wages in 2018 and 2019, apparently in anticipation of the mandate, or in competition for workers with higher-paying jobs across the river. And a tight labor market in the months since has raised wages further.
Impact of $15 minimum wage
With the goal of gradually moving toward a $15-an-hour citywide minimum wage over the next few years, St. Paul rolled out a wage schedule that requires most low-wage employers to institute annual increases, which began at $9.25 to $11.50 an hour as of July 1, 2020, depending upon business size.
Officials in both St. Paul and Minneapolis promised they would contract economists to analyze the impact on jobs, earnings and employment hours. It's a task complicated by the COVID-19 pandemic, the recession, rioting and arson following the death of George Floyd, federal relief checks, a labor shortage, inflation and other curveballs of the past several years.
"This needs to be interpreted with caution," said Anusha Nath, a research economist who worked on the analyses for the Minneapolis Fed.
Nevertheless, the researchers were able to glean some "baseline" data from pre-COVID employment numbers, and they spotted some sizable "anticipation effects" in St. Paul. In short, restaurants, retail and food services apparently braced for the minimum wage hike by cutting jobs or reducing hours in 2018 and 2019, even before the new law rolled out, though the overall low-wage sector showed little net effect.
Drops in jobs, hours, earnings
St. Paul restaurants in particular saw large drops in jobs, hours and total earnings.
"The estimates of job loss in the restaurant industries of both St. Paul and Minneapolis are particularly large compared with other studies of minimum wages, implying that at least some businesses in the Twin Cities were quite sensitive to the actual or imminent increases in labor costs," reads a study summary by Lisa Camner McKay, a writer-analyst with the Opportunity and Inclusive Growth Institute at the Minneapolis Fed.
Most other low-wage sectors studied in St. Paul, such as social assistance and administrative support, showed no deep changes in the studies. A hodge-podge of jobs falling into the "other" category — such as repair shops, barber shops and personal care services — actually increased in number, for reasons that aren't entirely clear.
"In that sector, we saw an increase in total jobs," Nath said. "This could partly be driven by if there's a loss in restaurant jobs, these workers could be getting jobs elsewhere. ... These are the types of channels we want to study in future reports."
How much did St. Paul's initial minimum wage increase impact St. Paul businesses after July 1, 2020?
Given that the increase took effect in the early months of the pandemic, shortly after riots rocked St. Paul's Midway, it's probably too soon to tell.
"Isolating the impact of the minimum wage during ... unprecedented times poses a significant challenge and raises questions about how to interpret data from 2020," reads the study summary from the Minneapolis Fed.
Given the scramble to attract workers during a labor shortage, some call it unlikely that boosting the minimum wage has had deep impact.
Andy Remke, co-owner of the Black Dog Cafe in St. Paul's Lowertown, said the restaurant industry used to attract many casual workers who wanted to pick up a shift here or there for extra spending cash.
"The pandemic pushed a lot of those people out of the industry," said Remke. "We're paying probably easily 20% more than we were for cooks, and probably more."
He added: "Minimum wage is certainly not a factor. The only people we have working here making the minimum wage are servers, and that's before tips, after which they make substantially more. Everybody else — food runners, kitchen staff — they're all making more, because that's the labor environment we're in."
The Minneapolis wage law began in 2018, offering more pre-pandemic data to work with.
The researchers found that through early 2020, the total number of jobs declined by 12% more than they otherwise might have at full-service Minneapolis restaurants, and 18% more at limited-service restaurants. That's roughly 2,900 Minneapolis restaurant jobs lost over the 27 months analyzed.
At the same time, wages increased about 4% more for Minneapolis full-service restaurant workers, and 9% more for limited-service restaurant workers, than they otherwise might have.
The analyses are the first in a series of annual reports planned from the Minneapolis Fed through 2028, and they've already garnered pushback from advocates for the $15 minimum wage. A written critique published by the Economic Policy Institute, a left-leaning think tank based in Washington, D.C., calls the Minneapolis changes in employment "implausibly large" and likely attributable to other factors, given that the Minneapolis minimum wage last year increased by only 75 cents at small employers and $1 at large employers.
"The data and methodology used in the study are simply not sufficient to distinguish between the effects of the minimum wage increases and other changes in employment happening around the same time," it states.
Full effect might not be known for years
It will be a few more years before the full effect of a $15 minimum wage in the Twin Cities can be studied in retrospect.
That's because the mandated increases roll out on different schedules for large or small employers in Minneapolis, and micro, small, large, and macro businesses of more than 10,000 employees in St. Paul. It won't go into effect for all city businesses until 2024 in Minneapolis and 2028 in St. Paul.
For their findings, researchers with the Minneapolis Fed and the University of Minnesota used administrative data from the Minnesota Department of Employment and Economic Development, which provides quarterly earnings and hours worked for each employee of businesses that file unemployment insurance reports with the state.
The DEED data was combined with information from the U.S. Bureau of Labor Statistics' Quarterly Census of Employment and Wages, allowing researchers to identify the specific establishment, industry, ZIP code and city where each individual works.