A year ago I wrote about twin examples donated by one of Minnesota’s twin cities, Saint Paul, Econ 101 principles in action.
The municipal council of Saint-Paul adopted a minimum wage 2018 ordinance that, beginning in January 2020, would increase the city’s minimum wage in stages to $15 per hour for all businesses by 2028. Research found that:
…even the mere anticipation of the minimum wage hike appears to have led to lower jobs, hours, and overall earnings for restaurant workers in St. Paul, just as Econ 101 predicted.
A nice illustration of a price floor in action.
St. Paulites had also voted to enact one of the strictest rent control measures in the United States, capping annual rent increases at 3% without taking inflation into account or exempting new buildings. And:
An equally beautiful illustration of a price cap in action.
But St. Paul’s Twin, Minneapolis, also touts itself as an economic policy lab and also provides examples of price floors and caps at work with minimum wage hikes and rent controls.
The Federal Reserve Bank of Minneapolis recently released its latest reports on the impact of minimum wage hikes in the Twin Cities. For St. Paulit found that, by 2021Q4, the rise led to:
…an average drop in jobs of 2.2%, an average drop in the total number of hours worked of 2.3% and an average drop in wage income of 2.1%. The largest effects are found in the restaurant and retail sectors, in the lowest paid establishments and for the lowest paid workers.
In retail trade, the increase reduced jobs by 23%.
Across the Mississippi in Minneapolisthe study found that in the fourth quarter of 2021, the increase in the minimum wage led to:
…an average drop in jobs of 1.7%, an average drop in hours worked of 1.3% and an average drop in wage income of 1%. The largest effects are found in the restaurant and retail sectors, in the lowest paid establishments and for the lowest paid workers.
In retail in particular, the rise reduced jobs by 28%, hours worked by 20% and incomes by 13%.
In both cases, increases in the minimum wage, a floor price, made labor more expensive and employers responded by buying less of it, as Econ 101 suggested.
Minneapolitans also voted for rent control measures in November 2021, but the city has dragged its feet on implementing them. A new report, commissioned by the city itself, indicates why. He found that:
A rent stabilization policy would not effectively solve the problem of the financial burden on tenants. It does not target assistance to tenants whose income is insufficient to pay market rent. A rent stabilization policy would also impede the growth of the city’s housing stock, which runs counter to many existing city policies aimed at promoting the production of new housing to ensure existing and new residents have access. to a range of options to meet their needs.
He warned that:
If a rent stabilization policy were adopted in Minneapolis:
- Some current tenants may benefit from greater housing stability due to the certainty of the limit of future rent increases.
- Tenants may actually face greater housing instability due to higher rent increases than they otherwise would have experienced, as landlords may start raising rents to the maximum amount allowed.
- Tenants may experience a decline in housing quality, as a rent stabilization policy could discourage property maintenance and improvements.
- There could be a significant drop in the creation and preservation of rental housing in Minneapolis.
Ultimately, “the costs and adverse effects of a rent stabilization policy would outweigh the potential benefits of reducing the burden on tenants”.
Minnesota presents itself as an experiment in expanded government: “Minnesota Democrats plan to expand state government to historic size,” the Pioneer press reported recently. His government is propose to increase spending and, even with a projected budget surplus of $18 billion, to also increase taxes. BNC News recently called the state “a laboratory for how to effectively use that power to achieve progressive political priorities.” Nowhere is this more true than in the twin cities of Minneapolis and St Paul. The results speak for themselves.