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Context matters in minimum wage debate

Courtesy of Minnesota House Public Information Services
In 2014, the Minnesota Legislature will enact a long overdue minimum wage adjustment.

In 2014, the Minnesota Legislature will enact a long overdue minimum wage adjustment.  A large majority of Minnesotans support an increase and the DFL controls the House, Senate and Governor’s office, so the stars are finally aligned for 357,000 of Minnesota’s workers and 137,000 of their children.  If self-defeating bi-cameral bickering can be put aside, the only real suspense should be about the amount of the minimum wage adjustment.

This year, the House passed legislation to set Minnesota’s minimum wage at $9.50 per hour, but it was rejected due to howls of outrage from the business lobby and Senate DFLers.  They maintained that $9.50 per hour was extravagant.

Compared to what?

At first blush, I understand why a jump from as low as $4.90 per hour to $9.50 per hour could seem excessive.  But Minnesota’s minimum wage hasn’t been adjusted in a very long time, and plenty of successful economies are operating very successfully with a much higher minimum wage.  Here is some context for this debate:

  • $5.15:  Georgia minimum wage (lowest in the U.S.)
  • $4.90-$5.25-$6.15:   Minnesota minimum wage for trainees, small businesses, and large businesses respectively.
  • $7.25: Federal minimum wage.
  • $7.25:  Minimum wage in ND, NE, SD, TX, WV, WI and many other states.
  • $7.75:  2013 Minnesota Senate-passed minimum wage (not enacted).
  • $9.00:  National Democrats’ recommendation:  The federal minimum wage increase endorsed by President Obama in 2013 (accompanied with an automatic annual adjustment for inflation).
  • $9.19:  Washington state’s minimum wage (highest among the states).
  • $9.50:  2013 Minnesota House-passed minimum wage (not enacted).
  • $9.95:  Canadian minimum wage.
  • $10.70:  What the U.S. minimum wage 1968 would be today if it had kept pace with cost-of-living increases since 1968.
  • $10.93:  Dutch minimum wage.
  • $11.09:  Irish minimum wage.
  • $12.09:  French minimum wage.
  • $16.88:  Australian minimum wage.

So, the House-recommended level does look generous compared to the Minnesota’s embarrassingly stingy status quo.  But the 2013 House-enacted minimum wage looks downright miserly compared to what Americans were paid in the Nixon era, what many peer nation employers are paying, and what it actually takes Americans to cover the costs of basic needs.

The floor for negotiations

Minnesota’s cost-of-living is 105% of the national cost-of-living, a bit higher than average.  Therefore, Minnesota’s minimum wage should be a bit higher than federal minimum wage to have the same purchasing power.  One hundred and five percent of the $9.00 per hour recommended by President Obama would be $9.45 per hour, almost exactly what the Minnesota House enacted in 2013.

A minimum wage of $9.45 per hour is nowhere near what American workers were paid when in the Nixon era, or what contemporary Americans actually need to make ends meet, but it would represents modest progress.

Given that progressives saw minimum wage adjustments vetoed by Minnesota Republican Governor’s five times over a 14-year span, they also need to push, as President Obama is, for an annual inflation adjustment to prevent effective annual wage cuts in the future.   It makes no sense to fight for a decade and a half to win an adjustment only to watch workers’ wages effectively shrivel year-after-year.

Moving from $4.90 per hour to $9.45 per hour sounds exorbitant to leaders who haven’t done their homework.  In 2014, Minnesota’s working poor need those leaders to do their homework.

This post was written by Joe Loveland and originally published on Wry Wing Politics.

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Comments (7)

  1. Submitted by Paul Udstrand on 11/19/2013 - 10:58 am.

    The “hit” to business

    It’s also important to remember that the business community frequently exaggerates the impact of a higher minimum wage. In fact very few workers are actually getting paid those $4.90 and $5.25 wages right now anyways. Very few if any employers would actually be facing a 50% increase in payroll. As a general rule if you can’t afford to pay your workers a living wage, you have a bad business model. Walmart for instance could afford higher wages, but it would decrease their profits somewhat.

    We have to remember, we’re not all here just to make employers and investors wealthy. Employers have a social and economic function beyond profit, employers that don’t pay living wages are actually a drag on our economy and the social fabric of our society.

  2. Submitted by Dennis Tester on 11/19/2013 - 12:21 pm.

    The lack of a minimum wage

    doesn’t necessarily mean low wages. It could mean higher wages.

    I used to work in a management role at a local software development company. It was non-union, of course.

    I used to recruit Java programmers at a starting salary of $80,000 a year. And this was 20 years ago. If they had been unionized, the union probably would have demanded that I pay them $60,000. But I paid them 80 because my competitors were paying them 75.

    If I had my way, I would have a minimum wage of $0 and let the labor market decide what a fair wage would be. I’m convinced that every job in the labor market would be paying more than what the government is currently demanding and it would be a more accurate reflection of the real health of the economy.

    • Submitted by RB Holbrook on 11/20/2013 - 11:13 am.

      Java programmers

      How many of them are getting minimum wage?

      Your conclusion that a union would have demanded less than what you ultimately paid your employees is just silly.

  3. Submitted by Paul Udstrand on 11/19/2013 - 05:11 pm.

    Dennis…

    If “markets” produce living wages we wouldn’t be having this conversation in the first place and Bangladeshi garment workers would be the most affluent labor force in the world. The idea that minimum wage laws somehow prevent employers from paying higher wages is simply incoherent and counterfactual. The problem with the “magic” of markets is that there is no such thing as “magic”.

  4. Submitted by jason myron on 11/19/2013 - 07:48 pm.

    It could mean higher wages?

    “If I had my way, I would have a minimum wage of $0 and let the labor market decide what a fair wage would be.”….sometimes, the jokes just write themselves.

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