Raising the minimum wage is good for workers, families, and local economies

Late last year, the Pine Knot ran an Our View editorial, “There are better ideas than $15 an hour.” As an economist, I couldn’t disagree more. On the contrary, a substantial hike would assuage many now in working poverty, encourage labor force participation, raise living conditions for many thousands in our state, and generate business income in our local communities.

During the 2012-13 Minnesota legislative session, I led the research for and co-authored “Making Work Pay in Minnesota,” the final report of a bipartisan House Committee on Living Wage Jobs. That report provided the analysis for a substantial increase in Minnesota’s minimum wage, phased in over several years. It also supported the 2014 Women’s Economic Security Act that requires employers to provide 12 weeks of unpaid pregnancy and parental leave and guarantees employees their job after the leave is completed.

Following are several common assertions that I’d like to rebut, based on our research.

The idea that many minimum-wage earners are “working part-time as a way to supplement their family income” is contradicted by Bureau of Labor Statistics data on involuntarily part-time employment. Many Minnesota workers are not offered full-time employment but would prefer it. Many large big-box employers offer only part-time work so that they do not have to pay benefits. Many parents would like to work, but at low wages and involuntary part-time hours, they cannot afford child care.

The argument that “Minnesota has a very nice and generous system of subsidies to help” including food stamps, medical assistance, day care assistance for working parents, housing programs of all kinds, and public transportation” isn’t true for everyone. Aside from the fact that subsidies instead require County and Minnesota taxpayers to foot the bill for underpaid employees, in our northwest quadrant of Carlton County (Wright and Cromwell) people have no access to public transportation and only minimal housing assistance.

Minnesota’s minimum wage, indexed for inflation, increased to $9.86 on Jan. 1, 2019, up from $9.65. This rate applies only to large employers, businesses with total sales over $500,000. For smaller employers, the wage rose to $8.04 from $7.87.

The minimum wage is, above all, a fairness device. Initiated nationwide in 1938 when unemployment was 19 percent, Congress expressly intended to prevent market forces from driving the wages of the least-skilled workers below a level considered fair. Since then, with worsening income and accelerating wealth inequality, the fairness argument is as persuasive as ever.

Over time, both federal and state minimum wages have failed to keep pace with inflation. In 1970, a full-time minimum wage job nationally was worth $21,800 in today’s purchasing power but fell to $15,100 by 2018. Full-time working Minnesotans’ salary purchasing power fell to $14,800 by 2010. In 2014, our State Legislature passed phased-in hikes that increased the purchasing power of a full-time minimum wage worker to $20,100 by 2018. It remains 3 percent below the 1968 level.

Will a minimum-wage hike have a negative impact on employment? Over more than two decades of research, economists have found little if any job loss following a federal or state increase. Some studies have identified job gains. Close to laboratory experiments, the best studies compare counties along state borders after one state raises its minimum wage and others did not. The borders studied included Minnesota’s with Iowa, Wisconsin, and North and South Dakota.

Why don’t local economies experience job losses following a wage hike? Minimum-wage employers — mostly in fast food, big-box retail, and home and health care — face modestly higher labor costs for their lowest-paid workers when the minimum wage rises. Studies of how business owners actually respond to a minimum wage hike find few layoffs. Not wishing to lower morale among remaining employees, they figure out other ways of adjusting. They work to improve productivity. They accept slightly lower profit rates. And, they benefit from lower turnover, a major business cost.

For most employers, especially small businesses, the impact of a minimum-wage increase on overall costs is modest. Think fast food. An owner must pay rent or mortgage costs, property taxes, utility bills, a franchise fee, transportation and food costs plus the wages of higher-paid workers. Economists estimate that a minimum-wage hike would cost customers a few cents on a $5 burger. That’s probably not enough to induce a hungry customer’s drive to Superior from Cloquet.

Higher minimum wages put more dollars into low-wage workers’ wallets. These workers are likely to spend most of an increase rapidly. And locally. That’s why some economists’ studies find a positive impact on local employment following a wage hike.

Since the state’s increases earlier this decade, higher minimum wages have helped Minnesota attract and retain workers. High school and recent college grads struggle to make ends meet, pay their debts, and find good jobs. They are not working for pin money.

With our strong economy, Minnesota can afford a substantial wage hike. We enjoy one of the highest labor force participation rates in the nation. A higher proportion of our 16- to 64-year-olds are working than in any other state. Our official state unemployment rate is 2.8 percent as of December 2018, compared with 3.9 percent nationally, though it is higher in Carlton County at 4.5 percent. Our cost of living is moderate, and the educational attainment of our workforce is very high.

Adequately compensating the most vulnerable workers among us can only make our economy fairer and our state a more attractive place to live and work. And, it will lower the taxes we’d otherwise be paying our county for social services.

Cromwell’s Ann Markusen is an economist and the founder of the Project on Regional and Industrial Economics at the University of Minnesota’s Humphrey School of Public Affairs. She was the lead research consultant and writer for the Minnesota House Select Committee on Living Wage Jobs, 2012-2013 that led to staged increases in Minnesota minimum wage in 2014. The Committee Report, “Making Work Pay,” can be downloaded at http://www.house.leg.state.mn.us/comm/selectcommittees/LivingWageJobs.asp