Raising the minimum wage creates a multiplier effect. A minimum wage increase will result in billions of dollars in additional sales for businesses in Minnesota. Low-income workers spend a higher proportion of their wages than members of middle class. This is what economists mean when they say low-income workers have a high marginal propensity to consume. Therefore, a substantial increase in the minimum wage to say $8.50 would boost aggregate demand in Minnesota and create additional jobs.
Consumers would face higher prices. But research shows that consumers are likely to spend savings (increase their marginal propensity to consume), rather than consume less. The end result is that a minimum wage increase would stimulate Minnesota’s economy and create jobs. Increasing the minimum wage is also attractive because it would assist many low-income workers that have been hit the hardest in this recession. For example, workers that were laid off in the manufacturing sector only to find employment in a minimum wage job would receive much-needed assistance.
There is very little evidence to suggest that businesses would respond by relocating to another state, shutting down, or laying people off. To the contrary, most evidence suggests businesses would raise prices and try to increase the productivity of minimum wage workers.