I’ve lived in Minneapolis all my adult life; raised a family here; we shop, walk and bike daily here; we make a serious effort to spend locally. We are proud of this city; we love it and are committed to it. Over the decades, I’ve cofounded two companies in the metro area employing hundreds. So, with sincere local-leaning sentiments, I offer thoughts from the front lines of commercial warfare on the debate over a $15 minimum wage.
In all my business experience, we always started with manufacturing in the USA — indeed, even in Minneapolis or at least in Minnesota. Always, decade after decade, eventually we faced a choice: Go out of business or move work to Mexico, Malaysia, Thailand, China. Consumers are no different whether buying electronics, solar panels or apples — they react to price and will pay only a tiny premium for products perceived as “local” or “sustainable.”
Without a highly unique product advantage (a rare thing), companies vying for consumer business must reduce costs to compete. They can only charge so much, so if pressed, they seek profit by automating or moving labor to lower-cost locations. By imposing a $15 minimum wage, with only its borders for enforcement, Minneapolis will create a “perverse incentive” to those seeking to eliminate low-wage jobs in Minneapolis or move jobs outside its borders. Seen another way, the Minneapolis minimum wage is a $5-per-hour-per-employee subsidy for automating or moving jobs elsewhere.
And a “phase-in” doesn’t help. If Minneapolis nods to a unilateral minimum wage, the winds of change will shift instantly and irreversibly toward moving or eliminating its low-wage workers.
On the East and West coasts, you find cafes with iPads for ordering where cooks deliver the food. Providers of those iPad menu systems (targeted at high-wage markets) are certainly paying sales calls to Minneapolis businesses. The cost of those systems can’t beat the labor savings here enough to justify the cultural pushback — yet. Force a higher wage, and things change. And as soon as one business automates, it’s easier for followers.
A business faced with a mandatory new expense (tax) on its activity within a defined border has these choices:
1) Make cuts to keep costs level — cutting staff and/or automating.
2) Convince customers to accept higher prices to offset higher costs.
3) Earn less money — accept increasing costs, eroding profits.
4) Close or move business across the border.
Those are the only choices.
Add the cost of mandatory sick leave, and the iPad system vendor’s pitch to eliminate 30 percent of employees starts sounding good. Machines require maintenance, but they are not people and are far less trouble than humans provided they deliver comparable value. The proposed Minneapolis wage gives the machines or iPad systems a $5-an-hour advantage over where they are today.
A business with mostly minimum-wage employees has little pricing power. It loses customers readily if it raises prices — it will cut costs before it raises prices if indeed it can raise. So a mandate for a higher minimum wage hands a huge incentive to those offering ways for businesses to eliminate workers. And, while difficult, it’s still much easier to let employees go (or not hire new ones when they leave) than to increase prices to customers.
Imposing a $15 minimum plays directly into the hands of those seeking to eliminate and/or automate low-wage jobs, hastening the demise of small business and the worker we seek to elevate.
Unintended consequences of a $15 minimum wage only in Minneapolis will hurt the city and its workers. Instead of approving the proposal this week, Minneapolis should pause, table the measure, and work with the whole metro area to develop thoughtful, long-term, business-friendly incentives to keep the jobs we have while attracting more and higher-wage jobs.
The $15 proposal is simultaneously a penalty to existing businesses for keeping low-skill jobs inside the Minneapolis city limits and a strong signal telling prospective businesses to stay away.
Joel Cannon is co-founder and president of Cannon Technologies Inc. (retired) and co-founder and CEO of Ten K Solar Inc. (retired).