Minimum-wage primer: How Minnesota fell behind Wisconsin and other Midwest states

MinnPost illustration by Christopher Henderson

This is part of an occasional series of articles funded by a grant from the Northwest Area Foundation.

Just eight years ago, Minnesota led in the Midwest on the matter of the minimum wage, offering $6.15 per hour to those working for the state’s large employers. Back then, that was about $1 more than most of the state’s closest neighbors.   

But that leading position quickly faded in the region and across the nation. When the federal government increased its minimum wage from $5.15 to $7.25 per hour by 2009, neighboring states like North Dakota, South Dakota, Wisconsin and Iowa quickly followed suit. Minnesota’s minimum wage didn’t budge.

In fact, Minnesota is one of just four states in the entire nation that has a minimum wage on the law books that’s lower than the federal rate. Minnesota’s political and cultural rival Wisconsin has paid a higher minimum wage since 2007, hitting $6.50 per hour that year and matching the state with the federal minimum wage of $7.25 per hour by 2010. While many businesses in the state must pay the federal minimum wage rate in Minnesota, there are some exemptions that allow the state rate to be paid to workers.

Minnesota legislators will renew a debate about increasing the state’s minimum wage at the start of the 2014 session, with House Democrats and Gov. Mark Dayton pushing for a $9.50 per hour wage in Minnesota. Some senators would like to see a lower minimum wage of $7.75 per hour passed this year.

The House position would put Minnesota at the top of the list, paying the highest state minimum wage in the nation.

State minimum wages: 2006

Minnesota led the Midwest in 2006 with a minimum wage rate of $6.15 per hour. The rate had been bumped up an entire dollar during the previous legislative session after a drawn out battle between Democrats who controlled the Senate, House Republicans and GOP Gov. Tim Pawlenty. Democrats called for a $2 increase over several years, but Republicans and business leaders pushed back on that proposal. In the end, the governor agreed to a $1 increase because the wage hadn’t been changed since 1997.

State minimum wages: 2014

In 2007, lawmakers in Washington, D.C. passed the first increase to the federal minimum wage in a decade. By 2009, the federal minimum wage had increased in increments from $5.15 per hour to $7.25 per hour. By the following year, all of Minnesota’s neighboring states also increased their state minimum wage to match the federal level. Minnesota, however, kept its rate at $6.15 per hour.  

Who works on minimum wage in Minnesota?

Minnesota law sets the minimum wage at $5.25 for companies with yearly revenues up to  $625,000 and $6.15 for companies that have revenues of $625,000 or more. Both of those rates fall well below the federal minimum wage of $7.25 per hour.

Without exemptions, many Minnesota businesses must pay the federal minimum wage. That’s because any business that engages in “interstate commerce” — which can mean simply taking credit cards or using suppliers from out of state – must pay the highest minimum wage offered, either the state or federal.

About 1 in 20 Minnesota workers earns the minimum wage.

Roughly 83,000 hourly workers in Minnesota make $7.25 an hour or less, according to a recent report from the Minnesota Department of Labor and Industry. That accounts for about 5 percent of all hourly workers in the state.

Minimum Wage: Too low or too costly?About 47 percent of hourly minimum-wage workers are employed in bars or restaurants, but more than half of those workers receive overtime, tips or commissions. All of Minnesota’s neighboring states have a so-called tip credit, which allows businesses to pay an employee less if they make up the difference in tips. Women are more likely to be paid the minimum wage than men, and 60 percent of minimum wage workers are under the age of 24.  Nearly 60 percent of minimum wage workers also have some level of college education.

State minimum wages for tipped employees

All of Minnesota’s neighboring states have a so-called tip credit, which allows businesses to pay an employee less if they make up the difference in tips.

Advocates of increasing the state’s minimum wage point out that the value of the Minnesota minimum wage fell 30 percent from 1974 to 2013, according to the Department of Labor. That means, in real dollars, minimum wage workers today earn less than they did in 1974.

Full minimum wage, actual and inflation-adjusted, Minnesota and the United States, 1970–2013

wage chart
The real value of both the Minnesota and Federeal minimum wages has declined since the 1970s.

“Declining wages hurt families and our overall economy,” said Shar Knutson, president of the Minnesota AFL-CIO and co-chair of a coalition pushing for an increase Minnesota’s minimum wage. “By increasing Minnesota’s minimum wage to $9.50, we can begin to make work pay again and include more people in our state’s economic recovery.”

A December 2013 report from the Minnesota Department of Employment and Economic Development (DEED) estimates raising the minimum wage to $9.50 per hour would affect about 461,300 jobs in Minnesota, or about 16 percent of the state’s total workforce. That number is likely to decrease, however, as the economy improves.

But opponents say the border communities are the ones worrying the most. They fear small businesses, unable to absorb the cost of increasing the wage to $9.50 per hour, will pack up and move to a neighboring state.  “All the states around Minnesota are federal conformity states at $7.25,” said Hospitality Minnesota President Dan McElroy, whose group opposes a minimum wage increase without a  “tip-tiered employee” system. “That makes impacts in border cities greater.”

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Comments (29)

  1. Submitted by Dennis Tester on 01/28/2014 - 09:07 am.

    If it’s constitutional

    for governments to set a minimum wage that employers must pay, wouldn’t it also be constitutional for governments to set a maximum wage an employer must pay? And if you believe that, then wouldn’t it be constitutional for governments to set wages for all jobs for all employers?

    Don’t answer that. I’m afraid you’ll actually say yes.

    • Submitted by David Wintheiser on 01/28/2014 - 09:32 am.

      Constitutional but impractical

      Of course it would be constitutional, at least for businesses that engage in interstate commerce — “to regulate Commerce…among the several States” is a pretty broad power. I’d argue that setting a maximum wage would be hugely beneficial to the economy, as it would divert billions of dollars from unproductive hedge funds and real estate purchases into corporate investment, hiring, and infrastructure improvements.

      No Congress would try setting wages for all jobs for all employers that engage in interstate commerce, though, because it would be ridiculously impractical. It would be like the FBI hiring people to follow ‘persons of interest’ around as they move in public — there’s nothing illegal about the government watching what you do in public, but the logistics of hiring and coordinating such surveillance would be a nightmare. (Which is why getting it done electronically is much more appealing to the powers-that-be.)

      That’s a pretty good rule-of-thumb, by the way — many things we think of as unthinkable are really only impractical until someone finds a way to automate or aggregate the process.

      • Submitted by Dennis Tester on 01/28/2014 - 09:59 am.

        The interstate commerce clause

        has been used to justify many outrageous overreaches by government, it’s true. But I don’t believe congress hasn’t passed such legislation because it would be “ridiculously impractical.” Obamacare is ridiculously impractical. Not even Keith Ellison would sign on to such legislation. He needs the gig too much.

  2. Submitted by Jon Lord on 01/28/2014 - 10:02 am.

    Currently

    The Federal minimum wage is looking like it’ll be around $9.50 an hour or more. $10 plus has been mentioned. Assuming all states must (right now it appears as it’s ‘if’, rather than ‘must’) follow the federal minimum wage then any impact between states would level out. That sounds like what’s known as fair. I’m not Catholic but about poverty versus greed…”Hey! What the Pope said!”

    Just considering what the CEO of Goldman Sachs makes a year, or Walmart’s CEO, etc, is over $8000 an hour, $10 an hour doesn’t seem like much.

    The GOP is against a higher minimum wage, against food stamps, against aid to families, against Social Security, against job creation and against public health care and the ACA. Some GOP pundits have actually called the Pope a communist. All that would seem to mean they lean heavily for introducing more poverty.

    • Submitted by Dennis Tester on 01/28/2014 - 10:31 am.

      That makes sense

      Because all those GOP small business people love it when customers are too poor to buy their products and services. The Pope’s not a communist. But the catholic church has always been a bit Marxist in its economics. That’s not new. I remember when the local archbishop wrote a scathing editorial demanding tax increases to pay for the poor. I asked him, “hey archbishop, I thought Jesus said that was YOUR job.”

      • Submitted by Matt Haas on 01/28/2014 - 12:27 pm.

        Thanks Dennis

        For perfectly illustrating the cognitive dissonance that underpins so much of conservative economic theory. You’d think conservative businesspeople would like customers with the ability to pay, yet they keep electing representation that keeps pushing policy that would reduce everyone to slave labor. It does boggle the mind.

        • Submitted by John Appelen on 01/28/2014 - 03:16 pm.

          Slave Legislation

          Please provide us some examples?

          • Submitted by Matt Haas on 01/28/2014 - 03:44 pm.

            Take your pick

            Of the ALEC authored right to work legislation.

            • Submitted by Frank Phelan on 01/28/2014 - 05:45 pm.

              Uhh, Check That

              It’s Right To Work For Less.

              It has nothing to do with a right to work, and those who favor such legislation don’t think anyone has a right to job.

            • Submitted by John Appelen on 01/28/2014 - 10:47 pm.

              Right to Work

              Per my understanding, right to work laws simply grant people the freedom to opt out of unions and paying dues. I don’t read anything here about being forced to work for free. What am I missing?
              http://en.wikipedia.org/wiki/Right-to-work_law

              Here is an interesting article.
              http://www.washingtontimes.com/news/2013/oct/23/transplant-laborers-may-put-brakes-on-uaw-drive-in/?page=all

              It seems like a lot of American consumers are supporting the manufacturers that set up in right to work states. If they support unions… I still wonder why they didn’t keep buying cars where the UAW had a strong influence? (ie Ford, GM, etc) FYI, my suburban was built in the Janesville WI GM/UAW plant before it was closed.

              • Submitted by Jon Kingstad on 01/29/2014 - 09:24 am.

                What you are missing. . .

                is the reason for right to work laws in the first place. Let me spell it out for you.

                Right to work laws are to make it harder- a lot harder – to organize and maintain a union. Unions exist to enable workers to bargain collectively for higher wages and better conditions of employment. So called “right to work” is built on the fantasy that individual employees can enjoy the same wages and benefits without having to belong to or contribute to that union.

                Corporations like GM and Ford might set up plants in “right to work” states but that does not exempt their employees in those plants from collective bargaining agreements that cover all employes who work on assembly lines whether in Detroit or Janesville.

                It’s a popular myth that unions and high wages are at fault for the decline of American industry and business. You should read David Halberstam’s “The Reckoning” to open your eyes to that untruth. Japan ate our lunch because of the blindness and incompetence of Detroit’s business leaders. That’s something that’s still with us. The financial collapse that materialized in 2008 and is still at the bottom of this country’s depression did not happen because workers are being overpaid in the country. Wages and employment have stagnated and declined at the same time unions and union membership are at all time lows.

                The fault for our current financial predicament is solely on the greed and incompetence of America’s business and financial leaders who blame anything that goes wrong with their businesses or the economy on everyone except those in their mirrors.

                • Submitted by John Appelen on 01/29/2014 - 02:54 pm.

                  Plenty of Blame to Go Around

                  Management and Labor together nearly killed GM and Ford, and they did kill Chrysler. Together they made the companies inflexible and the products too expensive.
                  http://www.washingtonpost.com/wp-dyn/content/article/2006/03/25/AR2006032500097.html

                  And ultimately it is the American consumers that made the call when they decided paying GM and Union members more than market compensation was not worth it.

                  And it continues since many of them are still buying vehicles that are built overseas or in “RTW” States. Definitely a vote against supporting union labor in the USA.

              • Submitted by Jon Lord on 01/29/2014 - 09:38 am.

                Hire at will laws, also known as at-will laws (all states have this law to some degree) also make it possible for employers to let a person go without providing a reason. True, there are still laws that protect people who are, say, in treatment for cancer, but after that treatment is finished they can be let go without a reason given. A person can’t be fired for being too old, but the employer doesn’t have to say that was the reason. No reason has to be stated.

                No, no one is forced to work for free. I don’t think anyone said that?

                Here’s an interesting article about Right-to-Work laws.

                http://www.mnaflcio.org/news/right-work-laws-get-facts

                Minnesota does have a right-to-work law

                • Submitted by John Appelen on 01/29/2014 - 02:18 pm.

                  Per Matt

                  “pushing policy that would reduce everyone to slave labor”

                • Submitted by John Appelen on 01/29/2014 - 02:37 pm.

                  Pros and Cons

                  How about a less biased source to learn from?

                  http://www.usnews.com/debate-club/are-right-to-work-laws-good-for-states

                  No, MN refused to pass RTW a few years back. We beat the topic to death on my blog.
                  http://give2attain.blogspot.com/2012/02/mn-right-to-work-amendement.html

                • Submitted by Jon Kingstad on 01/29/2014 - 02:48 pm.

                  Right to work and “at will” employment

                  Right to work laws are different than employment at will. At will employment is simply the default common law in every state of the US that says in the absence of a contract, an employee is hired “at will.” Many employers now only hire temporary employees to avoid having to pay benefits like health insurance and others hire only “independent contractors” who are often employees with no rights or pay.

                  Of course, without strong laws guaranteeing collective bargaining, the right to strike and requiring union membership to be employed, most people lack the bargaining position to demand a contract, let alone negotiate one with any meaningful wages or benefits. That’s why we have the Fair Labor Standards Act which imposes minimum wages and also requires employers to pay time and half for overtime.

                  So, you’re right that no one is advocating slavery but that’s not the issue. The issue is whether the government elected by the “people” should be able to adopt and enforce laws which makes sure people aren’t forced to work for wages which are inadequate to maintain a decent standard of living.

                  • Submitted by John Appelen on 01/29/2014 - 06:26 pm.

                    Global Economy

                    Let’s say that Liberals and Unions are successful in arbitrarily raising the wages in the USA via laws and or collective bargaining. Then let’s say that Liberal and Conservative consumers continue to buy the lowest cost / highest quality products and/or services available. (ie typically from low cost labor markets when practical)

                    How do you see this working?

                    The Unions and GM thought they could do it… However the American consumers very strongly disagreed by voting with their wallet.

                    • Submitted by Jon Kingstad on 01/29/2014 - 08:23 pm.

                      You confuse

                      “price” with “cost.” People buy cars for a certain price which it “costs” them; they don’t ay for the wages or pensions that “cost” the manufacturer to produce them. There’s no reason to believe that GM or any car manufacturer’s prices are higher because of high wages, union or otherwise. The auto industry in this country was founded on Henry Ford’s paying the highest wages in the country for manufacturing so his workers could afford to buy the cars they made. I fail to see how it is the fault of unions that GM or Ford or Chrysler is unable to compete against products which are manufactured in countries in which labor and unions enjoy even greater power with better benefits and higher wages.

                      In a country where everyone s [aid high wages and gets a decent living wage, everybody does better, If Americans are buying fewer new cars these days, it’s because the vast majority of them simply can’t afford any new cars. That’s a depression. It’s because people don’t have any purchasing power.

                    • Submitted by John Appelen on 01/29/2014 - 11:51 pm.

                      Margins Matter

                      Do you work in an equipment design and manufacturing firm?

                      I have 20+ yrs experience and am working at my 3rd one. Though we sell product on “market based pricing”. (ie maximize revenue/ profit by balancing price/volume) The difference between that price and the cost is called the margin. This is the money that allows companies to invest in new technologies, better designs, more productive facilities, etc.

                      As the costs for the American design & manufacturing companies are arbitrarily increased, and those of foreign design and/or manufacturing companies do not, the margin for the American product shrinks. So the American product starts to fall behind over time, then fewer consumers want it and the American firm has to discount further which further shrinks the margin… And so on… Look at Melroe Bobcat, it is now owned by a South Korean firm. Which means now that firm has decades of “American” intellectual property…

                      By the way, in Ford’s time global transportation, communication, time delay and other costs were astronomical compared to today. They provided an excellent trade barrier that let America operate independently of the world. Currently I am managing projects for customers in Europe, Asia and N. America… Times have definitely changed and so have the rules…

                    • Submitted by Jon Lord on 01/31/2014 - 05:39 pm.

                      well…

                      I worked for a couple myself. However, to say that the costs aren’t affected by the pay the corporate heads and stock holders is missing a large part of the equation. Moving most of the manufacturing base overseas while increasing the pocketbooks of the corporate heads has a profound effect on workers who then have less discretionary money to spend on the end products made from capital equipment. When the wages of the middle class starts drying up then it hurts the manufacturers of capital equipment here and abroad. A company can supply all the smartphones they want but if people can’t afford them it’s not going to help the company or anyone else.

                      Those who hold the power make the decisions. It’s not the other way around.

                    • Submitted by John Appelen on 02/09/2014 - 07:35 am.

                      Kogod Auto Index

                      I don’t disagree that many people influence business decisions, margins, R&D, sourcing, etc and that Mgrs / Investors are not blameless. However if the consumer truly wants something, businesses will strive to meet their desires or the business will fail.

                      Because we consumers are the ones who ultimately decide where we will spend our money. Now do we care about US content or not?
                      http://kogodnow.com/autoindex/

      • Submitted by Jon Lord on 01/29/2014 - 08:40 am.

        If all those

        GOP small business people want people who are too poor to buy their products, why don’t they support more aid or a higher minimum wage so they can sell more? Actually Jesus said it was the wealthy who should help the poor. There were no Archbishops around back then.

  3. Submitted by Connie Sullivan on 01/28/2014 - 12:08 pm.

    It turns my stomach to see that, with tip-impacted wages, there are waitresses out there earning as little as $1.24 an hour. Plus tips, of course. Is this in Wisconsin, that MN small restaurants, etc. are so worried about competing with?

    If there’s someone with a small business that can’t pay their wait staff more than that, they should go out of business. They are not a positive on the landscape.

    It’s appalling that Minnesota has fallen so far behind the real world, in terms of establishing a decent minimum wage.

  4. Submitted by Victoria Wilson on 01/28/2014 - 04:31 pm.

    framing the question

    In a recent post about social mobility and poverty Via Media framed the conversation around poverty A which addresses material concerns (paying rent, buying school clothes, buying groceries) and poverty B which is social poverty, meaning lack of social networks, low education levels, little social capital. Wouldn’t it be interesting to use this framework to discuss minimum wage? On the one hand an increase in the wage would benefit poverty A with a small increase in ability to make material purchases. But would that be countered by a negative effect to poverty B. If less small businesses in impoverished areas could afford minimum wage employment, would the youth in this area be denied an opportunity to work a first job, learn the responsibilities of a regular schedule, and develop a job reference for future employment? A policy that appears beneficial in system A could in fact deteriorate social benefits in system B.

  5. Submitted by Ron Gotzman on 01/28/2014 - 05:09 pm.

    Falling behind?

    I love these “fall behind” set-up questions.

    Can we also say MN is “surging ahead” in “tax and spend” policies?

    • Submitted by Greg Kapphahn on 01/28/2014 - 06:53 pm.

      Ah, Yes!

      The same old “tax and spend” policies that use to make our state the most prosperous and well-functioning (and attractive to high-tech business) state in the Upper Midwest.

      Clearly some of us would rather live at the other end of the Mississippi River, but rather than going to the trouble of actually moving to those low quality of life, high poverty states, (or even across the St. Croix) seem determined to take Minnesota down the same rat hole,…

      while somehow, remaining so trapped in the bounds of their alternate reality, that they “truly believe” turning Minnesota into Mississippi would bring us greater growth, greater prosperity, and better lives for us all.

      Count me out!

  6. Submitted by Tom Anderson on 01/28/2014 - 09:20 pm.

    The five state map would be scary

    If MN was suddenly over $2.00/hour more than our neighbors, especially if you lived near the borders.

  7. Submitted by Jon Lord on 01/30/2014 - 08:34 am.

    Ah!

    So you are suggesting that raising the minimum wage will bring about a reduction in aid to all families who need help to survive!

    Is there a mistake being made here? Is the assumption that only teenagers make the minimum wage? That there are no people with college educations working minimum wage jobs? No families making minimum wage only? That this is ‘just’ a problem for the very young entering the job market?

    Take a family of four, a couple with 2 children and both adults must work. They are working for a large company, say both parents must work, if they receive a raise from $6.15 an hour to $7.25 an hour then ‘big business’ would advocate decreasing their aid and consequently all aid to those making minimum wage plus all those who need aid but don’t have work? How nice! Maybe only one parent can work because they can’t afford day care for their children…same deal?

    Take a small business of 50 or 250 people where the couple each make $5.25 an hour! The ‘small business’ would advocate a similar decrease in aid to all families in need if the couple made an increase in their wages?

    Take companies who only pay minimum wage but don’t allow their employees to work 40 hours so they can avoid paying benefits?

    Is paying, or not paying, minimum wage just an either/or question?

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