Minnesota’s Economic News – W/E 4/16/21
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Earlier today, a bill was introduced in the Minnesota state Senate that would raise Minnesota’s minimum wage in order “to help low-income workers meet basic needs”. The bill calls for all large businesses – those earning no less than $500,000 annually– to pay $17 per hour beginning August of 2021. Small Businesses–those earning less than $500,000 per year– would be required to pay $15 an hour beginning the same time. The bill also calls for the minimum wage to be adjusted for inflation every year.
There is a lot to be said regarding why minimum wage hikes are a bad policy. Research evidence greatly supports the idea that raising the minimum wage significantly hurts less-skilled workers. The Congressional Budget Office recently estimated that gradually raising the federal minimum wage to $15 would result in a loss of 1.4 million jobs.
Additionally, as I have written before, there are fundamental differences that make enacting all-size-fits-all policies unattractive. Huge income differences exist between rural and metropolitan areas of Minnesota that would make a state minimum wage especially disastrous for rural Minnesota.
So, for all the evidence showing how disastrous raising the minimum wage would be, it is dumbfounding to see an even more drastic proposal like this one grace Minnesota’s congress. For one, unlike most of the recent proposals, this one does not allow a gradual phase-in of the minimum wage raise.
Phasing in the minimum wage generally allows businesses time to adjust and make changes. And 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 raising the minimum wage.
Especially considering its magnitude, a one-time minimum wage hike as the one proposed is a significant shock to businesses. Months is very little time for businesses to adjust and plan for what is essentially more than a 50% rise in the statewide minimum wage. This bill not only proposes terrible policy, but also terrible implementation.
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 low productive and require little skill. Moreover, this industry has been the most heavily affected by the shutdown. So, it should be common sense to expect that such 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.