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Policy Brief—Minimum Wage
Labor Market Situation
The current effective minimum wage of $7.25 an hour, or $15,080 a year for a full-time worker, is not enough to meet basic needs—not for an individual or a family. At $7.25 an hour, a couple with two children would have to work 155 hours a week to meet basic needs. At normal full-time hours, each parent needs to earn $14.03 an hour to meet basic needs. An individual with no children needs to earn $11.82 an hour. (See Family Wage & Budget Calculator.)
Today $7.25 is the minimum wage the vast majority of Minnesota businesses must pay. That's because for any business with gross revenue of $500,000 or more that takes credit cards or even uses out-of-state supplies, the higher minimum wage—federal or state—prevails. When the state minimum is lower, like Minnesota's current $6.15 an hour for large employers, it's essentially like not having any state law at all.
Far from being a national leader, Minnesota is one of only five states or territories whose minimum wage is below the federal. The other four are Wyoming, Arkansas, Georgia, and Puerto Rico. ( See Minimum Wage Laws in the States, US Department of Labor.)
Historically costs rise over time, and a dollar today buys less than a dollar a year ago, ten years ago, or forty years ago. If the federal minimum wage had kept pace with inflation and maintained it's purchasing power since 1968, it would today be over $10.55 an hour, or $21,944 a year for a full-time worker. (See CPI Inflation Calculator, US Bureau of Labor Statistics.)
When wages drop below living costs, families can't buy what they need, and local businesses can't find enough customers. A higher minimum wage will help Minnesota families meet basic needs and help the economy maintain robust consumer spending and economic activity.
Policy Solution
By increasing the state minimum wage, Minnesota can improve the lives of working families and simultaneously can boost the state economy.
In Minnesota, raising the minimum wage to about $10.00 an hour would mean better wages for half a million workers. Some 78 percent of those workers are age 20 or older, and 35 percent are married or are parents. (See EPI Report Shows Minnesota Would Benefit from Minimum Wage Increase—JOBS NOW Coalition, 2012.
A growing body of research shows that state and federal minimum wage increases preserve jobs and may even stimulate small net increases in jobs. Minnesotans receiving a minimum wage increase are apt to spend it immediately and locally, boosting sales and preserving or even creating jobs. Research shows that for every dollar increase in the minimum wage, families with minimum wage workers tend to increase spending by more than $800 per quarter during the first year. Other research shows that increasing the minimum wage from the current federal $7.25 to $9.80 per hour would give 463,848 Minnesota workers a raise and would boost consumer spending power by over $600 million statewide. (See "Spending and Debt Response to Minimum Wage Hikes"—Daniel Aaronson, Sumit Agarwal, and Eric French, Federal Reserve Bank of Chicago, 2011; and "How Raising the Federal Minimum Wage Would Help Working Families and Give the Economy a Boost"—Doug Hall and David Cooper, Economic Policy Institute, August 2012.)
Even in the most vulnerable sectors, such as fast food restaurants, increasing the minimum wage preserves jobs. A nationwide study published in the Review of Economics and Statistics shows no job loss resulting from minimum wage increases from 1990 to 2006, even in cases where a county on one side of a state border has a higher minimum wage than a county on the other side. (See"Minimum Wage Effects Across State Borders"—Arindrajit Dube, T. William Lester, and Michael Reich, November 2010.)
In Minnesota, teens make up less than a quarter of workers who would be affected by a minimum wage increase to close to $10 an hour. Minimum wage increases across the US over the past two decades have not contributed to teen unemployment, according to a study by Sylvia Allegretto, Arindrajit Dube, and Michael Reich. (See "Do Minimum Wages Really Reduce Teen Employment", Industrial Relations, April 2011.)
Minimum wage is a big business issue. The majority of low-wage workers nationwide, including minimum wage workers, are employed by profitable large corporations. Among the nation's fifty largest employers of low-wage workers as of 2011, 92 percent were profitable for the past year and 75 percent had higher revenues than before the recession. (See "Big Business, Corporate Profits, and the Minimum Wage"—National Employment Law Project, 2012.)
And what about consumer prices? The retail price effects of minimum wage increases are minimal, with economists estimating that a wage increase of $1.85 would mean an increase of half a percent or less in living costs for low-income households. (See Ann Markusen, Jennifer Ebert, and Martina Cameron, "Case for a Substantial Minimum Wage Hike for Minnesota", Humphrey Institute of Public Affairs, University of Minnesota, 2004.)
Any debate on minimum wage must account for the basic needs of Minnesota families and must consider the fact that a larger increase will provide a greater boost to consumer spending and economic activity.
Minnesota is a national leader in opposing the tip credit (actually a "tip penalty"). The tip penalty would allow employers of tipped workers to pay a lower minimum wage, reducing the benefits to working families and to the state economy.
The state minimum wage can be increased through an act of the Minnesota legislature.
Further resources
- Why Does the Minimum Wage Have No Discernible Effect on Employment?—John Schmitt, Center for Economic and Policy Research, 2013
- Cost of Living in Minnesota Research—JOBS NOW Coalition
- Minimum Wage Facts—JOBS NOW Coalition, 2013
- EPI Report Shows Minnesota Would Benefit from Minimum Wage Increase—Press Release, JOBS NOW Coalition, 2012
- How Raising the Federal Minimum Wage Would Help Working Families and Give the Economy a Boost—Doug Hall and David Cooper, Economic Policy Institute, 2012. Also see Minnesota characteristics of workers who would be affected by increasing the federal minimum wage to $9.80—Doug Hall and David Cooper, Economic Policy Institute, 2012.
- Big Business, Corporate Profits, and the Minimum Wage—Data Brief, National Employment Law Project, 2012
- Low-wage Workers Are Older and Better Educated than Ever—John Schmitt, Janelle Jones, Center for Economic and Policy Research, 2012
- Affording Health Care and Education on the Minimum Wage—John Schmitt, Marie-Eve Augier, Center for Economic and Policy Research, 2012
- The Minimum Wage Is Too Damn Low—John Schmitt, Center for Economic and Policy Research, 2012
- Do Minimum Wages Really Reduce Teen Employment—Summary—National Employment Law Poject, 2011
- Do Minimum Wages Really Reduce Teen Employment—Sylvia Allegretto et al, Industrial Relations, 2011
- Spending and Debt Response to Minimum Wage Hikes—Daniel Aaronson, Sumit Agarwal, and Eric French, Federal Reserve Bank of Chicago, 2011
- Minimum Wage Effects Across State Borders—Arindrajit Dube et al, Review of Economics and Statistics, 2010
- Do Frictions Matter in the Labor Market—Arindrajit Dube et al, Journal of Economic Literature, 2010
- Minimum Wage Increases Do Not Cause Part-Time Job Loss—Kai Filion, Economic Policy Institute, 2010
- States with Minimum Wages above the Federal Level have Faster Small Business and Retail Job Growth—Fiscal Policy Institute, 2006
- Case for a Substantial Minimum Wage Hike for Minnesota—Ann Markusen et al, Humphrey Institute of Public Affairs, 2004
- Substantial Minimum Wage Hike for Minnesota: Benefits, Costs, and Political and Economic Consequences—Ann Markusen et al, Technical Paper, Humphrey Institute of Public Affairs, 2003
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