“If an employer can’t pay a ‘living wage’ they shouldn’t be in business” – As Forepaugh’s Restaurant in St. Paul closes, activists get their way

This last weekend, St. Paul’s Forepaugh’s Restaurant, housed since 1976 in an 1870 Victorian mansion, closed. As the Pioneer Press reports,

Owner Bruce Taher said the reason for the closing was a combination of factors. “Our revenue continued to shrink year after year and some of the minimum wage activity has really pushed up the cost,” he said. “It’s difficult to do these things. You can do everything right — good food, great staff — but when the revenue shrinks and fine dining restaurants have trouble attracting as many people, it’s hard. We have wonderful clientele and staff, but it was just really a financial decision.”

“[T]he minimum wage activity”. Recently, Saint Paul followed Minneapolis in enacting a job killing hike in the minimum wage to $15ph. Of course, as Mr. Taher says, this is not the sole factor in the restaurant’s closure. Last month, the restaurant was rocked by the tragic death of Kyle Bell, who had been the chef at Forepaugh’s for the past five years*.

But, among several, the minimum wage was a factor in the closure of Forepaugh’s. As the Citizens League warned a year ago, Saint Paul’s minimum wage hike was unlikely to impact the city’s major employers all that much: the likes of Allina Health, Ecolab, HealthPartners, and Securian already pay the majority of their workers at least $15 per hour. It was always going to be smaller businesses, like Forepaugh’s, that bore the brunt of these political diktats. The range for restaurant profit margins span anywhere from 0% to 15% percent, with the most common average falling between 3% and 5%. These restaurateurs are not the billionaire capitalists of the activist’s fantasies. At the margin – where economic decisions are made – a hike in labor costs of 87%, such as Saint Paul is imposing on its small businesses, can mean the difference between going on or closing down.

Often, advocates of minimum wage hikes will claim that the price of labor can be raised by government command without any consequent decline in the quantity of labor demanded. This uneconomic proposition is, not surprisingly, refuted by the balance of empirical evidence. When they acknowledge this, they will often resort to the argument that “If an employer can’t pay a ‘living wage’ they shouldn’t be in business”. The closure of Forepaugh’s – and businesses like it – is where that attitude leads.

John Phelan is an economist at the Center of the American Experiment.

*A GoFundMe for Kyle Bell’s family can be found here.