Back in August 2023, the Minneapolis Federal Reserve published a paper titled “Minimum Wages and Labor Markets in the Twin Cities.” The paper makes one thing very clear: the large minimum wage hikes in Minneapolis and Saint Paul, starting in 2018 and phasing up to $15 and beyond by 2025, led to a noticeable drop in restaurant and retail jobs.
To understand the impact, the researchers, Loukas Karabarbounis, Jeremy Lise, and Anusha Nath, took a three-pronged approach. First, they compared what happened in Minneapolis and Saint Paul to similar cities that didn’t raise their minimum wage. Even after accounting for COVID-19 and the George Floyd protests, they found steep declines in jobs. Then they zoomed in, analyzing how the wage hike affected specific neighborhoods, businesses, and industries. This more targeted approach showed smaller job losses – roughly half as much – but didn’t capture how the wage hike might influence business openings and closures. So they went further and built a model to explain the difference between their first two methods. That model suggested the true employment loss likely sits somewhere in between.
In plain terms: increasing the minimum wage hurts jobs; it hurts them a lot.
The numbers are stark. After the hikes, Minneapolis lost about 5,400 jobs. Saint Paul lost 3,800. Full-service restaurants in Minneapolis saw a 41% drop in jobs and a 39% decline in hours worked. Fast food? Down 30%. Saint Paul’s story isn’t much better: a 30% decline for full-service restaurants and a staggering 45% drop in jobs at limited-service ones. Retail got hit hard too! Employment in that sector fell by 29% in Minneapolis and 23% in Saint Paul. And across both cities, workers logged fewer hours and often took home less money.
Which brings us to the core irony: the wage hikes didn’t result in significant gains for low-wage workers. The average hourly wage ticked up by less than 1%. Meanwhile, the people most directly affected, those already working in restaurant and retail jobs, were the ones most likely to lose work altogether. This wasn’t just workers shifting jobs. This was workers losing jobs.
And yet none of that solid, credible, peer-reviewed data guarantees smarter policy. Why? Because people aren’t spreadsheets. Humans are emotional, short-term thinkers. We like immediate gratification. And when you’re making $9 an hour (the state minimum set back in 2014) and someone promises you $15 or even $20, it feels like a win — especially if you’re in one of the industries where that promise directly affects your survival.
Story time!
Recently, I found myself at a neighborhood restaurant, deep in thought. I love being around people when I want to process and think through things. At the time, I was still getting a feel for the inner workings of city hall and the policies being pushed forward. As I sat there, the bartender struck up a conversation, and I started sharing what was on my mind. I brought up a few policies that didn’t quite add up for me—minimum wage among them. The mood shifted quickly. The tone changed, the energy in the room sharpened, and, while I’m being a little dramatic, I did start to feel less at ease.
The bartender became so animated and angry that she drew others into the conversation. They quickly adopted her position, which was that we need a significant minimum wage increase because the cost of living growth was out of control. She was advocating for a minimum wage increase from $15 to $20. The critical nail in the coffin and my favorite snippet of our conversation was her focus on the cost of shampoo – $8. That may seem insignificant to you but, at $15 per hour, that’s half an hour work. Given the relative cost of that shampoo for her, I would be pissed too.
In the middle of this battle, I mean, conversation, I asked “have you considered how this will affect small businesses and jobs?” Her response was, honestly, nonsensical. She became even more animated. Then I noted that increasing the minimum wage did not solve the fundamental problem of growing cost of living and it could make things worse. Y’all, I might as well have told her she didn’t know the difference between an Old Fashioned and a Manhattan. For those who don’t drink much, those are fighting words to a bartender.
It was a long and emotionally stressful night.
“…we have to help people like my bartender friend see that there’s a real path to long-term economic stability – a city that’s truly affordable and full of opportunity — without relying on quick narrow-minded fixes.”
A few days later, I reflected on the conversation. And I realized my core mistake. I was making logical arguments in an emotional debate. Because let’s be clear, take home pay is an emotional topic for those who are paid based on the minimum wage. It’s also a topic in which people are prone to optimism and overconfidence bias. That is, when I said “going to $20 will mean less jobs and less businesses,” she instinctually thought, “so what, I will be fine.”
This is a natural human reaction. It’s not specific to her or minimum wage workers. I bet you can think of multiple times this week, you adopted an optimism and overconfidence bias. It can be argued it’s a good thing as it’s what makes us humans great at overcoming challenges. But when it comes to the minimum wage conversation, it’s one of the problems we have to address.
Ultimately, if we want to pass realistic, effective policies, we need to recognize that facts alone won’t do the job. We have to connect with people emotionally. Policy ideas have to feel right, not just be right. We need to show that giving up that warm, ice cream-covered brownie now can lead to something even better later, like a perfectly grilled medium rare steak topped with garlic butter. (Yes, I’m probably hungry.) More seriously, we have to help people like my bartender friend see that there’s a real path to long-term economic stability – a city that’s truly affordable and full of opportunity — without relying on quick narrow-minded fixes. If we can’t do that, it won’t matter how solid the research is or how well the economic papers are written. The best policies in the world won’t stand a chance if they don’t speak to the heart.
The article sets up a contrast between emotional workers and logical policymakers. But this is misleading. The emotions expressed by workers—frustration, anxiety, urgency—are not irrational. They are deeply logical responses to a system where wages have not kept pace with the cost of living. When someone earning $15/hour struggles to afford basic necessities like shampoo, rent, or groceries, their emotional reaction is grounded in economic reality.
In a truly free market, if wages remain stagnant while the cost of living rises, workers would naturally seek better-paying jobs. Employers offering unlivable wages would either have to raise pay, reduce staff, or shut down. In this sense, minimum wage laws are not distorting the market—they are accelerating a correction that would otherwise happen more slowly and painfully. The difference is that policy can provide a floor to prevent exploitation and ensure a basic standard of living.
The Real Question: What Do We Do When Wages Don’t Match Costs? This is the heart of the issue. If the cost of living continues to rise and wages don’t keep up, we face a systemic failure. The solution isn’t to suppress wages to preserve low-paying jobs. It’s to ask:
Why is housing so expensive?
Why are basic goods and services outpacing wage growth?
What role should public policy play in ensuring economic dignity?
Minimum wage increases are one tool among many. But dismissing them as “emotional” responses ignores the structural imbalances that make them necessary.
While one can skim the surface of the ideology labeled “capitalism”, one also needs to understand how it works and how complex the notion is. In the case of nascent businesses, especially in the case of entrepreneurs (e.g., immigrants) who are seeking market entry, sweat equity is a major investment necessary when insufficient cash is available. Hospitality industries, in particular, require heavy doses of sweat equity to begin attracting patronage before there is sufficient cashflow to sustain that business. For that reason alone, most restaurants only last 18 months before they must make a decision to stay open or shutter.
At the beginning of a restaurant (meaning the first few years), rent, salaries, and inventory consumes virtually everything that can be made as the client base and reputation are established. Owners (oftentimes including the chef) will take zero salary until there is positive cashflow. Even then, owners/chefs might leave revenues in equity, to invest in upgrading, expanding, or evolving the restaurant. Thus the challenge in establishing new restaurants. You can negotiate rent, but you’re locked in once you’re signed an agreement. You can increase contributions of sweat equity by offering ownership options to employees in exchange for lower salaries. You can negotiate for inventory prices or lower the quality/variety of what you use. Watch the television series The Bear to see the choices that need to be made. Notice that not once in the series does pay/compensation get discussed; no one asks for more because they know the industry they are in.
The solution is to make it clear with potential employees that the restaurant industry is hard and that if they need more compensation, they might want to look elsewhere. The new restaurant can’t sustain that huge hits associated with pay, if it wants to survive. Just be honest with potential employees. If the pay is not sustainable for the potential employee, they need to find an established restaurant that isn’t taking that much risk or find a new industry to work.
If any employee who is hired agrees to a certain set of circumstances, like rates of compensation, and decides to violate that agreement by demanding more or shutting down the restaurant, they should be fired immediately. Their intention is not in the interest of the restaurant and should be separated before they cause more damage.
Simple and reasonable. It’s not capitalism that’s the problem. It’s a lack of education about what small businesses need to go through to create new and survival enterprises. At some point, it is no longer sensible to keep that business going, then everyone loses.
Perhaps if capitalism is so delicate that businesses can’t pay a reasonable wage and still operate, we should let them fail. That will show how untenable capitalism really is
It’s surprising considering how underwater the moderates in the democratic party they aren’t recognizing that Mondani Bernie, and AOC is the direction Democrats want. If you want to not support workers, go be a Republican.