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).