A newly introduced bill will raise the minimum wage to $17 in Minnesota beginning August 2021

Earlier today, legislators in the Senate introduced a bill to raise Minnesota’s minimum wage in order “to help low-income workers meet basic needs”.

If the bill passes, large businesses —  those earning more than $500,000 annually — will pay $17 per hour beginning August of 2021. Small Businesses will pay $15 an hour beginning at the same time. After that, the minimum wage will be adjusted for inflation every year.

Minimum wage hikes are a bad policy, as the research evidence has widely shown.

Minimum wage, if binding, kills jobs, hurting low-skilled workers. The Congressional Budget Office (CBO), for instance, recently estimated that gradually raising the federal minimum wage to $15 would result in 1.4 million job losses.

What’s worse, as I have written before, one-size-fits-all policies, like the one being proposed, tend to have more disastrous impacts on low-income areas. This is because low-income areas have little room to absorb the price increases that result from minimum wage hikes. So, they tend to lose more jobs. In this case, rural Minnesota would be the bigger loser if the bill passes.

More drastic than most proposals

While the minimum wage policies should generally be avoided, the current proposal is even more drastic than most. For one, it does not phase in the minimum wage like most other proposals have suggested.

Phasing in the minimum wage generally allows businesses to adjust and make changes. Furthermore, small and big businesses have different profit margins, with small businesses having little to no cushion for increased costs. Therefore, stretching the minimum wage phase-in period for smaller businesses can help mitigate the negative impacts of minimum wage hikes. This policy would give businesses a few months to adapt to a significant wage hike, which could be disastrous.

It is also important to remember that the majority of low-wage, low-income workers are employed in the leisure and hospitality industry. Jobs in this industry are relatively less productive. Moreover, this industry has been the most heavily affected by the shutdown.

A move to drastically raise the state minimum wage will kill jobs in leisure and hospitality, consequently hurting the low-income workers this bill is intended to help.