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St. Louis's mayor wants a $15 minimum wage. That’s probably way too high.

St. Louis is no Seattle
St. Louis is no Seattle
Dave Herholz

The union-backed "Fight for $15" movement has been more successful than I ever expected in securing big minimum-wage hikes in cities such as San Francisco, Seattle, and, most recently, Los Angeles. Now, as Ned Resnikoff details, the mayor of St. Louis wants to hop on the bandwagon and move to a municipal minimum wage of $15 by 2020.

Wonky sorts have mostly characterized these new municipal minimum wages as a kind of interesting experiment from which we'll learn a lot. And that's probably right. But in the particular case of St. Louis, it's an experiment where what we are overwhelmingly likely to learn is that when you lean too heavily on the minimum wage as the key to your labor market policy, you break your labor market.

St. Louis is no Seattle

It's no surprise that minimum-wage hikes have made their biggest headway in liberal cities. What's interesting is that there's good reason to believe coastal liberal cities are also the best place for big minimum-wage hikes as a matter of policy substance.

These are cities where rents for retail establishments in decent locations are generally very high, meaning that if you make it less profitable to be a low-wage employer, a lot of the burden ends up falling on landlords (lower rents) rather than reduced business investment. They're also affluent cities, where a high minimum wage doesn't pinch the entire wage structure, and where businesses can find customers who can afford to pay higher prices.

But while affluent coastal cities tend to be very liberal in their politics, so do majority-minority Midwestern cities whose tax and population bases have been devastated by decades of white flight and disinvestment. St. Louis is likely to vote for the same presidential candidates as Seattle, in other words, but its actual economic situation is entirely different. The city is poor, with a downtown that "suffers from an abundance of the opposite of density: parking lots" and has plenty of abandoned buildings.

In St. Louis, people are much more likely to adjust to a higher cost of employing people by employing fewer people. The most relevant precedent for a big hike in a relatively poor jurisdiction may be Puerto Rico, where an effort to match the US federal minimum wage led to a rise in unemployment and increased migration to the mainland United States. St. Louis is richer than Puerto Rico, but moving a person or a job across the St. Louis city line into the suburbs is a lot easier than migrating from Puerto Rico to the US mainland.

Designing thoughtful minimum-wage policy

If you're interested in credible, economically rigorous work that's favorable to a higher minimum wage, you want to turn to Arindrajit Dube of the University of Massachusetts. And his conclusion is that the right spot for a minimum wage is at around half the median wage, about where it was in the US in the 1960s and around the current international average for developed countries.

But of course that leaves open the question of what the relevant geographical area is. Yet whichever way you slice St. Louis, $15 an hour is really high:

  • In Missouri, half the median wage is $9.35
  • Adjusted for the regional cost of living, it's $8.59
  • In the St. Louis metro area, half the median wage is $10.11
  • Adjusted for the regional cost of living it's $8.66

You'll notice that these numbers are all a lot lower than $15. And by the way, the city of St. Louis is noticeably poorer, on average, than either the state of Missouri or the larger St. Louis metropolitan area. Relative to Missouri's current $7.65 minimum wage, that suggests a modest increase in the $1 to $1.50 range, not an enormous $7.35 boost.

The limits of alliteration

Fight for $15 is a pleasingly alliterative slogan in a way that "fight for $13.25" or "fight for a regionally differentiated wage floor based on local conditions" is not.

But $15 an hour is a very high figure. Dube's recommendations for states top out at $12.45 for Massachusetts, and for metro areas the highest one is $13.51. The various $15 minimum-wage proposals typically feature a multiyear phase-in structure that narrows the gap somewhat, but that is only for the richest and most expensive areas. For most of the country, $15 is an arbitrary figure that will likely be regretted by any city that chooses to adopt it.