Minimum Wage is Way Too Low
Minnesota 2020 joins a broad coalition of nonprofit, labor, and faith groups in a campaign to raise the state's minimum wage. It kicks off today at the State Fair and at satellite press events in Duluth and Mankato. We are happy to welcome one of our partners in that group, JOBS NOW Coalition, for the following analysis of why Minnesota needs a wage increase.
There is a growing consensus that the minimum wage is too low. And not just a little too low, but way too low.
In a national poll conducted in July for the National Employment Law Project, 80 percent of respondents supported raising the minimum wage to $10.10 an hour. The current federal minimum wage is $7.25 an hour, or $15,080 a year for a full-time worker.
Public opinion is simply reflecting the reality that today’s low wage workers are not getting by. When consumers can’t even buy basic needs, that’s not good for families or the state economy.
Cost of Living research by JOBS NOW Coalition shows that at $7.25 an hour, the effective minimum wage for virtually all Minnesota businesses, a couple with two children would have to work 155 hours a week to meet basic needs.
The minimum wage is intended to serve as a social norm for fair wages, according to economist Ann Markusen of the University of Minnesota. “Minimum wage is not simply a regulatory device,” Markusen says, “It’s a labor market institution.”
But the federal wage has lost value over the years. If the federal minimum wage had maintained its purchasing power since 1968, it would today be over $10.70 an hour, or $22,256 a year for a full-time worker, according to the US Bureau of Labor Statistics. If minimum wage had kept pace with average productivity gains, as it did in the decades leading up to the 1960s, it would today be about $22.00 an hour.
Many states have combated the problem by setting their own higher state minimum wage. The state of Washington has raised its minimum wage to $9.19 an hour and pegged it to rise with inflation in future years. Oregon’s wage of $8.95 an hour, also pegged to inflation, will easily surpass $9.00 an hour by 2015, and Connecticut’s wage will be $9.00 an hour in 2015.
The Minnesota House considered a bill last legislative session to raise the state minimum wage to $10.55 an hour and index it to inflation. The bill was later bargained down to the $9.50 an hour level at which it will be debated in the 2014 legislative session.
Raising minimum wage to $9.50 an hour would mean better wages for 360,000 Minnesotans and pump $472 million a year in consumer spending into the state economy, according to an analysis conducted by the Economic Policy Institute for JOBS NOW Coalition.
This booster effect might help explain why a nationwide study by economist Michael Reich published in the Review of Economics and Statistics shows no job loss resulting from minimum wage increases from 1990 to 2006, even where a county on one side of a state border has a higher wage than a county on the other side.
“The cost to employers of a minimum wage increase is generally small relative to their total wage and compensation costs,” says John Schmitt, senior economist at Center for Economic and Policy Research in Washington, D.C. “Employers often absorb the increase through channels such as reduced turnover and increased revenue from local consumer spending, rather than layoffs.”
A study by the National Employment Law Project (NELP) underscores another important point—most people earning minimum wage work for large, profitable corporations. Nationwide, about two-thirds of low-wage workers are employed by large businesses with over 100 employees.
The NELP study also found that the fifty largest employers of low-wage workers have nearly all recovered from the recession and are in strong financial positions: As of 2011, some 92 percent of these corporations had been profitable for the past year and 75 percent had higher revenues than before the recession.
The latest Minnesota Job Vacancy Survey shows that Minnesota’s low-wage employers have expanded dramatically over the past three years. In retail trade, job openings rose by 183 percent. In accommodation and food services, openings rose by 224 percent.
During the same three-year period, these gains were even more dramatic in Greater Minnesota. In Northeast Minnesota, for example, job openings in food preparation and serving went up 615 percent, giving this low-wage occupational group seven times more openings than it had three years ago.
The time is now to act on policies that raise workers’ wages, $9.50 by 2015 is a good start.
John Clay and Kevin Ristau are with JOBS NOW Coalition, a nonprofit based in Saint Paul that examines Minnesota’s economic and employment data.