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Policy Brief—Minimum Wage
Labor Market Situation
Working people throughout Minnesota are experiencing a wage loss crisis. At the current minimum wage of $7.25 per hour, a couple with two children would have to work 155 hours a week to meet basic needs. When wages drop below living costs, consumer spending is dampened. Reduced consumer spending in turn dampens the state economy.
Many states have set state minimum wages above the federal, because the federal minimum wage has not kept pace with inflation, meaning that the real value—the purchasing power—has dropped. Although Minnesota did set a higher standard in 2005, today our state minimum wage of $6.15 lags behind the federal. That's the same as having no state law at all, because the higher of the two—federal or state—prevails.
If the federal minimum wage had kept pace with inflation since the late 1960s, it would be $10.03 today. Nineteen percent of Minnesota jobs pay less. JOBS NOW's cost of living research shows that a single person with no dependents must earn $11.82 per hour to meet basic needs, according to wage data compiled by DEED for the second quarter of 2009. Twenty-nine percent of Minnesota jobs pay less. In a family of two working adults with two children, each worker must earn $14.03 per hour to cover the cost of basic needs. Thirty-nine percent of jobs in Minnesota—more than a million jobs—pay less than this family-supporting wage.
Policy Solution
By increasing the state minimum wage, Minnesota can improve the lives of working families and simultaneously can boost the state economy.
Minnesotans receiving the increase are apt to spend it immediately and locally, boosting sales at retail and service outlets and creating new 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. The stimulation of consumer spending may help explain why studies of state and federal minimum wages do not consistently or reliably show wage increases leading to job loss. (See Kai Filion, "How boosting the minimum wage is helping to support the economy", Economic Policy Institute Issue Brief 255, May 28, 2009; and Jeff Chapman, "Employment and The Minimum Wage", Economic Policy Institute Briefing Paper 150, May 11, 2004.)
Even in the most vulnerable sectors, such as fast food restaurants, net employment effects are positive or neutral. A nationwide study published in the Review of Economics and Statistics in 2010 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 Arindrajit Dube, T. William Lester, and Michael Reich, "Minimum Wage Effects Across State Borders", November 2010.)
And what about consumer prices? The retail price effects of minimum wage increases are minimal, with economists estimating price hikes of less than 1 percent at restaurants, gas stations and retail stores paying minimum wages. (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. We oppose the tip credit (actually a "tip penalty"), allowing employers of tipped workers to pay a lower minimum wage, because this would reduce the benefits to working families and to the state economy.
The state minimum wage can be increased through an act of the Minnesota legislature.
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