Brennan Center Report: Citywide Minimum Wage Laws

May 2006 Brennan Center report on citywide minimum wage laws, by Paul K. Sonn:

In Santa Fe, the minimum wage workers who received raises were overwhelmingly adults (89%), predominantly people of color (67.3%), and typically living in families where the low-wage worker contributed a significant share of the family’s income (51.6% on average).

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Moving beyond this body of research on state and federal minimum wages, the first wave of analysis of citywide minimum wage laws has consisted of surveys and projections of their impact prepared before they took effect. These analyses have generally found that the impact on local businesses would be fairly modest:

• An analysis of the Santa Fe law found that the median employer would experience a cost increase equal to just 1% of its sales revenue, and that the impact in the most heavily affected industry — restaurants — would be 3.4% of sales. Figures presented in court by four restaurants challenging the Santa Fe law indicated that the actual cost impact for three of the four would be even less.


• A survey of local businesses commissioned by San Francisco similarly found that 82% of employers would see less than a 1% increase in their operating costs under the new law. Only 5% of all businesses would see cost increases of 5% or more. A survey in New Orleans found even smaller impacts — averaging 0.9% of operating costs for employers overall, and 2.2% for restaurants — from a proposed citywide minimum wage.


• The studies in Santa Fe, San Francisco and New Orleans also concluded that few employers would be likely to relocate outside of the cities to avoid the higher minimum wage levels. This was because the businesses most affected were ones that needed to stay close to their customer base in the city — for example, restaurants, hotels and retailers.

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Increases in the minimum wage can also function as an economic stimulus for low-income neighborhoods. While higher-income households usually save a substantial portion of a pay increase, low-income households generally spend their higher wages. And they do so in their local communities on necessities such as food, rent and transportation.

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The power of cities to enact citywide minimum wage laws varies from state to state. In a few states such as New Mexico, Maryland and California, the legislature or the courts have already made clear that cities have the power to enact minimum wages. A few others — Louisiana, Florida, Texas, Georgia, Arizona, Colorado, Utah, South Carolina, Oregon and now Wisconsin — have passed laws that actually forbid citywide minimum wage laws. But in most states, the issue has not yet been tested. Legal analysis indicates that, in most states, cities may regulate minimum wages under their local “home rule” authority to enact legislation to safeguard the health, safety and welfare of their communities.