Border businesses math doesn’t add up in minimum wage debate

The passage of a higher minimum wage bill has border businesses singing the blues.

At J.C. Chumley’s in Moorhead, co-owner Josh Henstorf worries he would have to reduce employees’ hours and raise prices, which may send customers to Fargo in search of a cheaper alternative.

“I think it’s going to do a lot more harm than good to the business, to the employees, to the end-users,” one restaurant/bar owner told the Fargo Forum. “I really don’t see a winner at all.”

“You just have to adjust your prices accordingly,” said another. “You would hope that you wouldn’t have to cut anybody.”

We’ve been here before, of course. When the smoking ban went into effect, business owners on the state’s borders claimed they’d be harmed. It didn’t happen.

A Moorhead Chamber of Commerce official says businesses pressured politicians in Saint Paul to provide exemptions for businesses on the state’s borders, but it was no dice.

According to the Forum:

At the Dairy Queen in Moorhead, the average employee is 17 years old, said co-owner Troy DeLeon. “The people that are working these jobs, they’re not supporting a family,” said DeLeon, who predicts he’ll need to schedule one less worker each shift if the wage increase is enacted.

Let’s pull out the napkin and do the math on that.

Although the minimum wage will rise to $9.50, it will be phased in over several years. For small businesses, it will be $7.75 by 2016, just 50-cents-an-hour higher than North Dakota. But this year it will be 75 cents less than North Dakota. And next year it will be the same as North Dakota.

Reducing one employee per shift — assuming an 8-hour shift — would save a small business owner $4 a shift.

The average Dairy Queen menu item is about $3.

Conservatively, a business serving just 25 customers an hour, each buying just one item (which, of course, rarely happens), brings in $75. Over a shift, that’s 400 200 customers. In order to cover the cost of the higher minimum wage, a Dairy Queen owner would have to raise the price of a single item by 2 cents (per employee)

Are people really going to drive to North Dakota to save 2 cents?

North Dakota officials, of course, are only too happy to whip up the “you should move to North Dakota” sentiment, but they also acknowledge another reality: Many businesses in North Dakota aren’t paying minimum wage.

“I doubt we see much change in North Dakota, other than more businesses moving from Minnesota to North Dakota,” Jon Godfread, vice president for Governmental Affairs for the North Dakota Chamber of Commerce said. “In terms of employees we are paying in many cases above the proposed minimum wage already, that is the market at work. A $15/(hour) job at a McDonald’s in Bismarck is [a] prime example of the free market at work.”

The unemployment rate in Bismarck is 2.1%. It’s 2.9% in Fargo. In Moorhead, Minn., it’s just 3.1%. In Moorhead, the per-capita income is higher than Bismarck.

Headlines aside, the business climate seems to be just fine in both locations.

Related: Due or detriment: Winona small businesses react to minimum-wage proposal (Winona Daily News).

  • The pushback against the minimum wage hike is ridiculous. So what If I have to pay an extra 25 cents for a beer or burger. I’ll pay that without hesitation to support a higher minimum wage.

  • Jim G

    Antidotal stories and fuzzy math are propaganda techniques that work unless they are exposed by articulate journalists. Thank you for being one the few journalists who do not just take what they are handed by lobbyists and print it as news.

  • kevinfromminneapolis

    Reducing one employee per shift would save the entire total of eight hours of wages.

    • The thing that’s interesting here is how business seem to want us to believe that they’re providing charity to employees, merely by the act of employing them. I assume, on the other hand, that they employ people because it helps them make more money and provide better service, which in turn, allows them to make more money.

      So, presumably, cutting employees to save money will help them make less money.

      I don’t get the logic.

      On the comparison front, what businesses are saying — since NODAK currently has a higher minimum wage than Minnesota — is that employees on the border simply have to have a lower standard of living than the person on the other side of the bridge… because…well…. why, exactly?

      Furthermore, especially with a <3% unemployment rate, what's to stop someone from driving across the river and working at the Dairy Queen over there?

      • Patrick

        Why are you trying to bring logic into this?

      • kevinfromminneapolis

        I think businesses want to stay in business. When they see higher costs being forced on them without regard to the current condition of their business, I assume they say what the deuce are these people thinking and how would they like to come try to keep this operation afloat before they tell me I’m forcing people into a lower standard of living.

      • Dave

        Businesses aren’t the only ones who want us to think it’s all charity. Remember at the start of the 2011 state session, some Republican made a speech thanking the business owners job creators of Minnesota for providing jobs.

        • kevinfromminneapolis

          Governor Dayton does the same thing. Sorry. And yes, we should thank them.

          • Dave

            Contrary to popular conservative dogma, businesses don’t hire people out of the goodness of their hearts.

          • Ralphy

            And contrary to conservative dogma, the job creators are folks with money to spend. No business hires or retains an employee that is a net loss. Bob’s argument is spot on. If an employer cuts staff simply to reduce labor costs without calculating the net cost to the business, it is simply a self-inflicted wound and puts the business at a competitive disadvantage.

          • jon

            My value to the company is greater than my cost to the company. I know this because if it wasn’t I wouldn’t have a job.

            I don’t have data for my current job, but historically when I was a contractor I can safely say I saved companies hundreds of millions of dollars. I have never had a salary of hundreds of millions of dollars… During my working life, I doubt I’ve made a full million yet… though I’d have to check my tax returns to be sure.

            My value to them is greater than their value to me… seems like they should be thanking me, not the otherway around.

  • MikeB

    Thank you for doing the math rather than just repeating the knee jerk responses by the usual suspects

  • Dave

    Same old moaning and groaning every time the minimum wage is increased. “Ohh, but it will force us out of business and into destitution! The humanity!” And then that doesn’t happen, life moves on, and a few people earn more money that they likely put back into the economy.

    If you know anything about the minimum wage, you know that it was highest, with respect to inflation, in about 1968. Probably not coincidentally, that was also the time of the lowest income inequality (i.e., the gap between rich and poor).

    History, data, and logic do not support people who think we shouldn’t increase the minimum, or that there should be no minimum.

  • nick

    The Moorhead Dairy Queen is an institution in the community located equidistant from two college campuses in the center of the city and has a devoted, loyal customer base. It is an institution, which is supported by the reverence paid to its former owner upon his death last year. People don’t cross the river to go to a different Fargo Dairy Queen because of – even assuming the most drastic impacts – a modest price differential. This business also gets the benefit of paying sub-minimum wages that will be permitted in the new law because it exclusively hires high school kids.

  • joetron2030

    Anyone who is “really going to drive to North Dakota to save 2 cents?” are probably the same kind of people who will drive all over a metropolitan area to save $0.10 on a gallon of gas.

    • John

      I’ve always wondered about those people. I’ll pay a nickel a gallon more if there’s no line. In my car, that’s about 50 cents.

      Also – thanks Bob for doing the math. A friend of mine runs a small business and claims he’s going to drop the number of HS kids he has working there because he can’t afford them. I’m going to ask him how tight his margins are, if this minimum wage increase is really that big a threat. (I know he’s not getting rich, but his volume of complaining has me wondering).

  • bjartur

    Are you saying that raising the minimum wages will not cause anyone to lose their job or anyone to not get hired who would otherwise be hired? If so, is your opinion the same about other government-imposed increases in price? Do you think gas taxes do not cause people to drive less? Do you think that a carbon tax would not reduce carbon emissions? Do you think that a cigarette tax has no effect on how much people smoke? And would you apply the same rigorous analysis to those questions? (“There’s a guy in Waseca who says he’d get a more efficient water heater if there was a new carbon tax, but my back-of-the-envelope calculation says he wouldn’t.”)
    If you think raising the minimum wage will probably hurt some people but it’s worth it to help it to help other people, be honest about that. I think your DQ story, beyond being unconvincing, is a way of avoiding the difficult questions.

    • Why do Minnesotans read something I write and then ask me if I’m saying something else. I’m saying exactly what I wrote. I’m not the DQ manager who said he’d have to drop one employee per shift. Do the math and convince me.

      Now, of course, there’s a mistake in what I wrote that nobody has yet picked up on. The increased cost of the minimum wage isn’t spread across one worker pe shift. It’s spread across X workers per shift.

      So if there are, say, 6 people on a shift (I had to go back to my Dairy Queen days to establish that number), That’s $3 per hour, or about half a person currently making minimum wage.

      You would need to have 13 people working at any given time to equal the cost of the one person you’re cutting to pay the higher minimum wage. Are there 13 people working 8-hour shifts at the Moorhead Dairy Queen?

      If so, then the alternative to cutting one, under the above scenario is spreading the increase of $6.50 across all of the products you sell in a given hour.

      Under the 25-customers an hour, that would require another 26-cents PER ORDER per customer.

      Has the Dairy Queen raised prices by 26 cents on its products PER ORDER in the last few years. If so, by what percentage did business fail.

      This is a mathematical argument that is being made by both sides of the question. So providing the data shouldn’t be hard at all.

  • MrE85

    “Border business” often cry fowl when a state law is passed. Heard the same type of complaints when statewide smoking ban passed, and more recently when MN raised tobacco taxes.

  • kevinfromminneapolis

    Punch Pizza, which raised its wages without being forced to by the government, says it cut into profit by 20 percent. Not every business can handle that as easily. http://blogs.wsj.com/corporate-intelligence/2014/04/09/some-u-s-restaurateurs-voluntarily-lifting-employee-pay-to-avoid-minimum-wage-woes/

    • I’m sure it did. How could it not? But that still doesn’t provide the data, let alone the math, to say a Dairy Queen will have to reduce staff by one employee per shift. All I’m asking for is the math.

      • kevinfromminneapolis

        I don’t have that. If you figure at full implementation for a regular business it will be $2.25 (working from federal $7.25) more per hour for every person, say you have 3 people working 8 hours that’s…$18 more (8×2.25) for each person so…$54 total? Figure one person making $7.25 for 8 hours costs…$58 dollars in wages? I’m putting ? here because it’s math. For the $7.75 rate it’s obviously much lower.