St. Paul’s scheduled minimum wage increase to $15 has local small business owners calculating the financial impact, with many expressing serious concerns about their ability to absorb the added costs. Set to reach the $15 threshold for all businesses by July 2025, the city’s wage policy has created a dividing line between larger corporations with deeper pockets and neighborhood establishments operating on razor-thin margins.
Walking through St. Paul’s Midway district, the contrast is evident. National chains have already posted hiring notices advertising $15 hourly wages, while independent restaurants and retailers display handwritten “Help Wanted” signs with current wage offerings between $12.50 and $13.75. This gap illustrates the fundamental challenge: large businesses can distribute increased labor costs across multiple locations, while local shops bear the full burden at their single location.
Maria Castillo, who owns Sabor Latino, a family restaurant employing eight people, told me her payroll will increase by approximately $29,000 annually once the final wage hike takes effect. “We’re looking at reducing hours and possibly cutting staff,” she explained while reviewing her books. “Our food costs have already gone up 23% over the past two years. There’s only so much we can pass on to customers before they stop coming.”
The Federal Reserve Bank of Minneapolis released research last month analyzing similar wage increases in neighboring Minneapolis, finding that restaurants experienced a 12% increase in operating costs following that city’s implementation of a $15 minimum wage. The study noted that establishments responded with a combination of price increases averaging 9.2% and labor reductions of approximately 5.7%.
For retailers with tight profit margins, the math becomes particularly challenging. James Wilson, who owns a neighborhood hardware store, calculates that he needs to generate an additional $62,000 in revenue annually to cover the wage increases for his six employees. “That’s more than $5,000 in new sales every month just to break even,” Wilson said. “And we’re competing with big box stores and online retailers who can absorb these costs in ways we simply cannot.”
City officials point to research from the Economic Policy Institute suggesting that higher minimum wages stimulate local spending and reduce employee turnover, potentially offsetting some business costs. Council Member Rebecca Noecker, who supported the ordinance, cited data showing that lower-wage workers spend approximately 78% of increased income within their local communities.
“We understand this creates challenges for some businesses,” Noecker said during a recent community forum. “But we also know that workers who earn more spend more locally, and businesses benefit from reduced turnover and training costs.”
The phased implementation approach was designed to give businesses time to adjust. Companies with more than 100 employees reached the $15 threshold in July 2022, while businesses with fewer than 5 workers have until July 2025, creating a temporary tiered system that some economists believe has distorted the local labor market.
Dr. Elizabeth Cooper, economics professor at the University of Minnesota, told me the extended phase-in has created unintended consequences. “Workers naturally gravitate toward higher-paying opportunities, leaving smaller businesses struggling to attract staff even before reaching the $15 requirement,” she explained. “This competition for labor effectively accelerates the wage increase timeline for small businesses trying to retain employees.”
The Federal Reserve survey revealed that 68% of affected small businesses in Minneapolis implemented price increases to offset higher labor costs, while 42% reduced employee hours. Only 8% reported closing locations, though the study noted this figure may underestimate closures as it couldn’t account for businesses that shut down completely.
Beyond simple numbers, business owners describe difficult trade-offs. Michael Nguyen, who owns a small grocery store in the Frogtown neighborhood, has already shifted more work to family members. “My wife and I now work 70-hour weeks,” he said. “We’ve cut two part-time positions because we just can’t afford them, even at current wages.”
The timing compounds the challenge, as businesses continue recovering from pandemic-related setbacks. According to the Minnesota Department of Employment and Economic Development, small businesses in Ramsey County experienced an average 23% revenue decline during the pandemic, with many taking on additional debt that further constrains their ability to absorb new costs.
Industry groups including the St. Paul Area Chamber of Commerce have advocated for targeted support programs to help smaller businesses navigate the transition. Their proposals include tax credits for businesses below certain revenue thresholds and workforce development programs that increase employee productivity.
“This isn’t about opposing living wages,” said Chamber President Joe Spencer. “It’s about recognizing that a one-size policy creates disproportionate challenges for our smallest local businesses that contribute to neighborhood character and employ local residents.”
For consumers, the most visible impact will likely be higher prices. Economic research from Princeton University examining minimum wage increases in various cities found that businesses typically pass 70-80% of increased labor costs to customers through higher prices, with the remainder absorbed through efficiency improvements or reduced profits.
As the July 2025 deadline approaches, small business owners like Castillo continue looking for creative solutions. “We’re exploring menu changes, considering technology investments, and hoping customers understand if prices increase,” she said. “What we really need is support during this transition – not just being told to figure it out ourselves.”
The question facing St. Paul now extends beyond the minimum wage debate itself to what additional measures might help preserve the small, independent businesses that give neighborhoods their distinct character while ensuring workers receive living wages. The answer will likely require collaboration between policymakers, business owners, and consumers willing to support local establishments through this significant economic transition.
