It's the right time for a minimum-wage boost

  • Article by: EDITORIAL BOARD , Star Tribune
  • Updated: February 14, 2014 - 6:42 PM

Higher pay at the low end would stimulate the economy.

A higher minimum wage is in keeping with the Minnesota ethos that work has value and deserves a fair reward. It would be good for the affected workers and their families, and it would help spare taxpayers from the need to help provide life’s necessities to employed people.

Those are among the reasons we urge the 2014 Legislature to raise the state’s minimum wage to about $8.50 an hour next year, up from today’s $6.15 for larger companies and $5.25 for smaller ones that don’t engage in interstate commerce. (Those that do business across state lines must pay at least $7.25, the federal minimum.)

Those reasons are seldom disputed by the employers and their Republican allies who oppose DFL legislative efforts to boost the state minimum above the federal wage floor. But naysayers say those arguments are trumped by the squeeze higher wages will put on businesses and, in turn, on people who need jobs. Slower hiring and/or job cuts will result, they say.

Their contention is in sync with longstanding economic theory. But it hasn’t been borne out by recent evidence. As some states have leapfrogged ahead of Congress to raise the minimum wage in recent years, economists have been able to study the consequences compared with neighboring states that did not lift their wage floors. Their findings were summarized in a recent letter from 600 U.S. economists to the nation’s elected leaders, endorsing a national minimum of $10.10 by 2016. It said:

“The weight of evidence now show[s] that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers. … A minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the job front.”

The testimony of those economists, among them seven Nobel Prize laureates and four professors at the University of Minnesota, ought to reassure legislators as they take up what amounts to unfinished business from the 2013 session (see accompanying text). The “job killer” label just doesn’t stick.

That’s particularly true at this stage in the economic cycle. The Great Recession wrung any excess out of business payrolls. Many Minnesota employers operate today with lean workforces and few options to shrink them further, now that consumer demand for their goods and services is rising again. Give low-wage workers more income, and still more consumer spending will ensue, intensifying pressure on employers to hire.

A minimum-wage increase may be a trigger for higher prices for some goods and services. But Americans should know that some of the prices they pay now are indirectly discounted by their own tax dollars. Low-wage workers frequently must rely on the Earned Income Tax Credit; child-care and housing subsidies; food stamps, and health insurance tax credits under the Affordable Care Act.

Those programs function as an indirect subsidy to low-wage employers and industries, which are generally not the industries society is most eager to assist. It promotes an employer version of “welfare dependency” this state should discourage.

That said, we would not drive the wage floor up as rapidly as would some proponents of an increase. The state House’s 2013 bill would require a 54 percent increase by Aug. 1, 2015, in wages for employees now paid $6.15 an hour; the federal $10.10 minimum favored by President Obama would mean a 40 percent increase for employers who pay the current $7.25 federal wage. Those are leaps that would disrupt many businesses.

We’d prefer that the Legislature move the minimum to about $8.50 one year from enactment. It could also put in statute a schedule of future increases over the next four to six years, giving future Legislatures an opportunity to review them before they go into effect. We favor keeping elected officials in control of those increases, rather than pegging them automatically to inflation, as some of last year’s legislative proposals did. Those autopilot increases could result in employers being forced to raise wages at the start of a recession. That’s when the “job killer” rap against a mandated wage hike would be justified. But we also favor more frequent attention to the minimum wage by state lawmakers.

Minnesota is now one of four states that have allowed their minimum wages to lag the federal level. The others are Arkansas, Georgia and Wyoming. In most other policy matters, those aren’t states Minnesota seeks to emulate. This state has flourished with a tradition of higher wages, educational attainment and labor force participation.

Allowing Minnesota’s low-wage workers to fall farther behind median earners runs counter to the state’s proven formula for success. The Great Recession is over for most Minnesotans. It should end this year for low-wage workers, too.

  • KEY DATES

    • May 3: Minnesota House votes 68-62 to boost the state minimum wage from $6.15 an hour for large employers to $9.50 by Aug. 1, 2015. Three DFLers join Republicans in voting no.

    • May 8: Minnesota Senate votes 39-28 along party lines to boost the minimum to $7.75 for large employers by Aug. 1, 2015.

    • May 9: Conference committee convenes to attempt to reconcile the two versions of the bill.

    • May 20: Legislature recesses for the year without acting on minimum wage.

    • Feb. 25, 2014: Legislature scheduled to reconvene; conference committee retains power to act.

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