Living on $6.15/hour is tough, but at some of Minnesota’s smallest businesses, that is the minimum wage under state exemptions, making Minnesota one of only four states that have a minimum wage lower than the federal rate. For the vast majority of companies, the minimum wage $7.25/hour, which is still nearly impossible to live on.
To address these shortcomings, both the Minnesota Senate and House have introduced bills to raise the state’s minimum wage. Two of them (H.F. 92 and S.F. 3) increases the minimum wage to $7.50/hour, and links it to inflation. The other House bill (H.F 10) goes above and beyond, all the way to $9.38/hour. It also links the future minimum wage to inflation.
The minimum wage battle, both nationally and locally, has been hard fought since its inception in the 1960’s. Minnesota last raised the rate in 2005. By most accounts, minimum wage should be around $8 to $10 had it kept pace with inflation.
For progressives, these bills are a welcome sign. But there is significant opposition coming from some business groups and their members. The Minnesota state director of the National Federation of Independent Business, in an MPR interview, cites the most commonly-heard objections. Employers will have to cut jobs in the face of higher labor costs, and that many of the employees earning minimum wage are not the family breadwinner. Some business groups also worry about the uncertainty of their future wage liability if the rate is tied to inflation.
Those are far-reaching claims. But for public policies like minimum wage, the results are more nuanced. Alan Krueger, the current chair of the Council of Economic Advisers, authored a widely-cited and well-known study of minimum wage in the early 90’s. His conclusion: Raising the minimum wage does not cause firings, like some business groups allege. The theory is that with a higher minimum wage, employees are slightly less likely to quit and less money will go into training new employees.
There are other confounding factors to add to the debate as well. Minimum wage earners are more likely than their wealthier counterparts to spend any additional dollar they take home. That money will quickly enter the economy when they spend more on food, rent, or clothing. It’s significant that businesses all around Minnesota will be the ones receiving that additional spending. Business will be paying out more, but they will also be able to sell more.
The moral component of the minimum wage debate shouldn’t be ignored either. Does our state really think it is appropriate to let some Minnesotans not earn enough to stay out of poverty? Should inflation (however low it may be) silently give minimum wage earners pay cuts? Those questions become more prescient in a time when the social safety net is also being targeted by many politicians.
The minimum wage debate will be prominent during this legislative session because of the strong opinions it evokes. But in this debate, it is worth taking a step back, analyzing the available knowledge, understanding the law’s impact on all stakeholders – businesses, minimum wage earners, and the whole of Minnesota.