Minimum Wage

St. Louis Fights Reality, Boosts Minimum Wage

Job losses and price increases are on the horizon.


St. Louis
Daniel Schwen / Wikipedia

A massive minimum wage hike went into effect in St. Louis today, hiking hourly pay from the Missouri state minimum of $7.70 to $10 overnight, and raising fears of job losses and price increases.

Some 21 cities increased their minimum wage on January 1st of this year.

Reason has previously reported on how these city-level minimum wage laws often just shift jobs from high priced localities to cheaper neighboring cities, as happened in Washington DC, which shed 1,400 restaurant jobs after adopting a $15 minimum wage in 2016, while neighboring suburbs in Maryland and Virginia added 2,900 restaurant jobs during the same time period.

The St. Louis minimum wage increase was initially approved by city's Board of Alderman back in 2015, but has since been held up by a lawsuit brought by the Missouri Chamber of Commerce which alleged that a city level wage hike violated state law.

That argument was shot down back in March by the Missouri Supreme Court, and on Thursday a St. Louis Circut Court lifted an injunction it had placed on the law, allowing it to go into effect immediately.

"In the short run, it will require businesses to scramble to comply with the new law," said Missouri Chamber of Commerce president Dan Mehan in reaction to Court's lifting of the injunction. "In the long run, it will cost jobs and set an already struggling St. Louis City economy even further behind."

St. Louis's unemployment rate stands at 4.7 percent in March 2017, compared to a state unemployment rate of 3.9 percent statewide, and it does indeed seem likely that this most recent wage hike will only grow that gap.

Surrounding Missouri communities will still be abiding by the statewide $7.70 minimum wage, and neighboring Illinois $8.25 rate will now also be lower, attracting employers and investment looking to avoid St. Louis's pricier labor market.

Such concerns were voiced by St. Louis area businesses when the law was first passed back in 2015.

"People are going to go across the street to Maplewood," one bakery owner was quoted as saying in a 2015 Riverfront Times article, referring to the inner-ring suburb town adjacent to St. Louis.

Not helping St. Louis's labor market prospects either is the severity and speed of this wage increase. At 23 percent, St. Louis's minimum wage increase represents the sharpest hike to be implemented in 2017.

The state of Arizona comes in at a close second when its voter-approved minimum wage increase saw wages rise just under 20 percent–from $8.05 to $10 an hour—in January 1st of this year.

As has been reported, that sharp increase has caused severe hardship for state funded providers of disability services who have seen their labor costs go up without a commiserate rise in funding to offset those costs.

The predictable result has been cuts to service levels for poor and disabled Arizonans.

Thankfully St. Louis's minimum wage law does include some provisions which will help mitigate negative employment consequences of the law.

The new $10 rate does not apply to businesses that take in under $500,000 per year or who hire fewer 15 people, so the smallest and most vulnerable businesses will be somewhat shielded from the effects of the law.

This provision also gives those businesses a perfect incentive to just not hire that 16th person.

There is also a bill working its way through the Missouri Legislature that would block cities from raising their minimum wages over the state's minimum wage. The bill passed through the Missouri House, but is currently stalled in the senate waiting for a vote.

If it does pass, St. Louis's experiment in sudden wage hikes will be a decidedly short-lived one.

That will be good news for St. Louis workers and business owners alike. Regardless of the rhetoric spewed by $15 Now activists, raising the costs of something encourages people to buy less of it.

Baltimore's Mayor Catherine Pugh understood this well when she vetoed a $15 minimum wage bill, despite having campaigned such a proposal. "I believe it is in the best interest of the city that we follow the state," said Pugh following her veto.

Raising the costs of employment particularly in locality surrounded by lower wage communities is nothing but a recipe for job losses and business relocations.

Cities like Washington DC have learned this the hard way, and barring action by the Missouri Legislature, St. Louis will follow their example.