Minnesota’s Economic News – W/E 4/16/21
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In recent years, the governments of both Minneapolis at Saint Paul have passed ordinances raising their legal minimum wages to $15 an hour. This is above the state’s minimum wage rates, which are $9.86 per hour for large employers and $8.04 per hour for small employers.
Republicans at the Capitol want to stop this. As MPR News reports,
“We think it’s a mistake to have a patchwork of bills across the state,” said Senate Majority Leader Paul Gazelka. “Lots of small businesses have more than one location. It’s hard to navigate different sets of rules all across the state.”
Gazelka, R-Nisswa, said his caucus plans to fight hard to prevent cities from adopting minimum wages higher than the state standard. And for those that have done so already, the measure wouldn’t allow them to enforce or administer the ordinances. The preemption also covers ordinances imposing time off or shift-scheduling regulations on employers.
In support of the measure, Rep. Jeff Backer, R-Browns Valley, warned that
“With these type of situations, we’re driving entrepreneurs away,” he said. “And let’s face it: When entrepreneurs take risks, then they hire people and then that helps us all.”
Minimum wages are bad policy
Rep. Backer is right. Minimum wages are bad public policy. In 2008, economists David Neumark and William L. Wascher surveyed two decades of research into the effects of minimum-wage laws. They found that
“minimum wages reduce employment opportunities for less-skilled workers … (that) a higher minimum wage tends to reduce rather than to increase the earnings of the lowest-skilled individuals … (that) minimum wages do not, on net, reduce poverty … (and that) minimum wages appear to have adverse longer-run effects on wages and earnings.” In 2014, along with economist J.M. Ian Salas, they examined the subsequent literature and concluded “that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.”
In December 2018, Neumark updated his review of the research, asking When minimum wages are introduced or raised, are there fewer jobs? He writes
The potential benefits of higher minimum wages come from the higher wages for affected workers, some of whom are in poor or low-income families. The potential downside is that a higher minimum wage may discourage firms from employing the low-wage, low-skill workers that minimum wages are intended to help. If minimum wages reduce employment of low-skill workers, then minimum wages are not a “free lunch” with which to help poor and low-income families, but instead pose a trade-off of benefits for some versus costs for others. Research findings are not unanimous, but especially for the US, evidence suggests that minimum wages reduce the jobs available to low-skill workers.
But preemption isn’t the answer
Even so, preemption is not the answer. If the people of Minneapolis and Saint Paul want to elect politicians who push such harmful public policies, in the full knowledge that these policies are harmful, they have that right. When, as Rep. Backer rightly points out, businesses leave and take their jobs and tax revenues with them, this will be a price the voters chose to pay, though it is unclear what they think they are getting in return.
Supreme Court Justice Louis Brandeis famously called the states “Laboratories of democracy”, describing how a “state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” The same goes for local governments. As Minneapolis and Saint Paul offer themselves up as examples of what not to do, the rest of the state can learn from them.
Getting rid of the state’s minimum wage is the answer
But let us be consistent here. When he vetoed a preemption measure in 2017, former Governor Mark Dayton explained that
“Local governments can be more adept at responding to local needs with ordinances that reflect local values and the unique needs of their communities. State government does not always know what works best for every community, and may lag behind when improvements are needed.”
He was right. According to the Economic Policy Institute’s Family Budget Calculator, a household with 2 adults and 2 children in Hennepin County would face $98,483 annually in various costs. In Cook County, the figure would be $80,451. Areas with such different economic characteristics will require, to some extent, different economic policies.
But consider the implications. If it is wrong for the state government to pass a preemption law which would block local governments from raising their minimum wage above a certain level, why is it right for the state government to pass any sort of state minimum wage law which would block those same local governments from lowering their minimum wage below a certain level?
Simply put, the argument against preemption is also an argument against a statewide minimum wage. Lets be consistent and ditch both.
John Phelan is an economist at the Center of the American Experiment.