Ensuring Economic Sanity in St. Louis and Kansas City

Economics 101 says when you increase the price of a product or service, fewer people will buy it. When the price goes up, demand goes down. Some people believe that this basic rule of economics doesn’t apply to workers at the lower end of the pay scale. But politicians can’t suspend the laws of gravity or economics.

Experience shows that increases in the minimum wage decrease employment – particularly large increases. Seattle offers the latest evidence. In June 2014, the Seattle City Council voted to raise their minimum wage to $15 an hour in a stair-step approach. The first increase, to $11, took effect on April 1 of this year.

In a recent analysis, Prof. Mark Perry from the University of Michigan reviewed key labor measures from the Bureau of Labor Statistics and found that Seattle restaurants  (the sector most impacted by the minimum wage) cut 1,000 jobs in May – the largest one-month decline since January 2009 and the first significant decrease since the fall of 2011. Fortunately, Seattle’s restaurant industry was isolated in this job loss. Seattle’s overall employment in May increased by 21,800 jobs or 1.2 percent. And restaurants elsewhere did not suffer. Nationally, restaurant employment increased by 1.2 percent, and in non-Seattle areas of Washington state, restaurant employment increased by 3.2 percent.

Not long after Seattle increased its minimum wage, local politicians in St. Louis and Kansas City started discussing similar ideas for our two largest cities. In St. Louis, alderman approved a stair-step increase to $11 an hour. In Kansas City, a referendum was placed on the ballot to increase the wage to $15 an hour.

House Bill 722 started as a silly, if not stupid, bill. When first passed by the House, it prohibited local governments from banning plastic bags or taxing them. I can’t remember any other time I did this, but I voted “present” on the bill when it was just the “bag bill.” Call it a protest vote. I don’t support cities banning plastic bags or taxing them. Yet, at the same time, plastic bags are not a topic worthy of two seconds of floor time in the legislature. We shouldn’t be micro-mananging municipal minutiae.

Then Senator Kehoe made the bill meaningful by adding an amendment ensuring that we have a uniform statewide minimum wage by prohibiting local governments from increasing it. Governor Nixon vetoed the bill. Last week, the legislature overrode it.

Those arguing to uphold the veto argued the bill was an improper infringement on local control, comparing the bill to the federal government placing a mandate on the states. This argument misses the critical distinction between federalism – the relationship between the federal government and the states – versus the relationship between states and municipalities.

The federal government is the creation of independent states that existed before the federal government. The federal government is one of limited powers (at least in theory, unfortunately not, it seems, in reality). Those powers were granted to the federal government by the Constitution with the individual states reserved as the building blocks of American government.

The states also created cities and other local governments. As explained by the Missouri Supreme Court, “A municipal corporation is a creature of the legislature possessing only those powers expressly granted, or those necessarily or fairly implied in or incidental to express grants.”
As a general rule, local control is better than the alternative. It’s also the most abused argument in the Capitol. (A close second: the claim that spending X amount of your tax dollars will result in X times Y in a return to taxpayers.) Local control is a value in itself, but unlike life or liberty, it’s not an overriding value. (If you think otherwise, ask yourself why we have a Bill of Rights.) In Missouri’s capitol, “local control” is most often a desperate talking point of those who hope to avoid an argument on the merits.

Local decisions are better for several obvious reasons. First, those in an affected community are in a better position to know the right policy for their community. Second, those who disagree can always “vote with their feet” if they don’t like local control decisions.

And this second decision is why HB 722 was important to people throughout Missouri. It’s one thing if municipalities make decisions that make life slightly less enjoyable for some citizens. It’s quite another for them to take actions that chase jobs out of our state – particularly when it’s the two largest cities in our state, each of which compete with neighboring states for jobs. When St. Louis and Kansas City do dumb things that cause job loss, it hurts everyone in our state. With HB 722 now law, they won’t have that power any longer on the minimum wage.