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Raising Minnesota’s minimum wage: Washington state shows one way

Washington, with a diverse economy and educated workforce a lot like ours, has the nation’s highest minimum wage — and is going strong.

Many anti-poverty groups are saying raising the wage is among the most effective initiatives government can do to help people get out of poverty.
REUTERS/Brendan McDermid

This is the first in a series of articles funded by a grant from the Northwest Area Foundation.

One of the headline battles of the upcoming legislative session will be whether — and how much — to raise Minnesota’s minimum wage.

Similar debates are getting a lot of traction around the nation and promise to be a key political issue at least through the fall elections.

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Democrats, for example, see raising the minimum wage as a good election-year issue for them and plan to place raising the minimum wage on several state ballots in an attempt to boost turnout and help win hotly contested congressional races.

That ballot approach is a strategy that’s worked well in the state of Washington, and below we’ll take a look at some of the minimum-wage dynamics that make the Evergreen State experience a good case study for Minnesota leaders to review.

President Barack Obama, too, is throwing his support behind congressional Democrats' proposal to raise the federal minimum wage to $10.10 and peg it to inflation, more than a dollar higher than the $9 proposal he made in his State of the Union address last February.

Many anti-poverty groups are saying raising the wage is among the most effective initiatives government can do to help people get out of poverty.

Others argue, though, that the national debate needs to aim much higher, closer to a so-called “livable wage” of about $15 as an essential way to improve the quality of life for millions living on the margins of society.

Studies clearly show that the gap between the nation’s rich and poor is growing. Stats such as these are topics of discussion among people of all political persuasions:  20 percent of Americans now own 85 percent of the nation’s wealth, and the top 1 percent have 40 percent of the wealth.

In coming weeks and months, MinnPost will report stories that examine these issues — and many more — including the economic and social impact of efforts to raise the minimum wage in Minnesota.

One traditional argument against raising Minnesota’s current $6.15 level is the contention that increasing the minimum wage will cost jobs and harm the economy. (It should be noted that most minimum wage workers receive the federal minimum of $7.25 and even the state’s Chamber of Commerce supports that base, with caveats.)

Losing jobs because of a high minimum wage certainly hasn’t been the experience in the state of Washington, which has the highest minimum wage in the nation.

Case study: Minnesota vs. Washington

In many ways, Washington would seem to be a good case study for Minnesota, because the two states share many similarities (less a few mountains and an ocean).

Both have diverse economies, and both weathered the recession better than the nation as a whole.

In both states, the majority — 60 percent — of the population resides in a single metropolitan area.

Minimum Wage: Too low or too costly?Both states are affluent, compared with the rest of the nation. In Minnesota, the median household income is $59,126. In Washington, the median income is $57,573. (The national median is $51,371.)

Even the poverty rates are similar: 11.2 percent in Minnesota, 11.9 percent in Washington. (The national rate is 16 percent.)

But there’s one glaring difference: the minimum wage. Washington has the highest minimum wage in the country. It increased to $9.32 on Jan. 1.

Minnesota has its split-level rates: the $6.15 level, paid almost exclusively by very small operations not involved in inter-state commerce, and the $7.25 federal level. That $6.15 rate is third lowest in the nation, ranking ahead of only Wyoming and Georgia. The rate hasn’t been increased since 2005. 

The reason for Washington’s outlier status is simple: Its legislature was never involved in setting the wage.

Minimum wage
$9.32 $6.15
129% 85%
of the current federal minimum wage of $7.25/hr.
Year last raised
2014 2006
Number of increases since 1968
17 9
Unemployment rate
6.8% 4.6%
Poverty rate
11.9% 11.2%

Instead, in 1998, Washington voters passed Initiative 688, which called for the minimum to be raised from $4.90 to $5.70 in 1999, to $6.50 in 2000 and thereafter be increased based on the federal cost-of-living index.

The impact of the minimum wage increase has been real, according to the nonpartisan Economic Opportunity Institute in Seattle. According to that organization’s stats, in the 20 years prior to the voter-pushed minimum wage increase, the bottom 10 percent of wage earners in the state had seen a decline of “real income” of 8 percent. In the years since, “real income” has increased by 20 percent.

Minnesota does not allow such citizen initiatives.

“The [Washington] legislature would not have done this,” said Rich Hadley, who heads the Spokane Chamber of Commerce. Instead, he said, the referendum passed because of heavy support from voters in the Seattle area.

Impact on states’ job losses?

Hadley’s Spokane is relevant because it snuggles up to Idaho, where the minimum wage is $7.25. One of the arguments of those opposed to increasing the minimum wage in Minnesota is that a higher minimum would chase jobs to neighboring states.

Has eastern Washington lost jobs to Idaho because of the differential in minimum wages?

“It’s impossible to take one item and make judgments on where jobs go,” Hadley said. “We may have the highest minimum in the country, and it does cause business to complain, but Idaho has a state income tax -- we don’t.”

(Minnesota, of course, has a state income tax with rates that are often the source of political — and economic — debate.)

Hadley seemed to have a hard time coming up with many negatives about the high minimum wage in his state.

Perhaps, he said, its greatest negative impact is on small businesses in remote areas of the state. But he is quick to add that these are good times for Washington as a whole and the Spokane region in particular.

Spokane, he said, isn’t really interested in attracting the sort of businesses that would pay minimum wage. It’s attracting businesses in search of a well-educated workforce, a strength of the region, he notes.

“I’m not saying we’d rather not be No. 1 in the country when it comes to the minimum wage,” Hadley said, “but the fact is, our economy is robust.”

Luis Fraga, a political science professor at the University of Washington in Seattle, agrees with that “robust” assessment. Rapid growth of Amazon and  Google, sustained growth of Microsoft and boom times for Boeing all have turned the high minimum wage into an economic footnote.

Fraga said that business interests always have floated the idea that high minimums would close the door on teens and others looking for low-entry points into the workplace.

“But these theoretical arguments that you always seem to hear don’t stand up to reality,” Fraga said. “I have seen no reports that the high minimum has made it more difficult for teens or low-skilled workers to get jobs.”

Have those at the bottom been helped by the high minimum?

“Every penny helps,” replies Fraga.

That statement appears to be true. A recent study by University of Massachusetts economist Arin Dube shows that raising the minimum wage reduces poverty. In his major paper — Minimum Wages and the Distribution of Family Incomes — he says that a 10 percent increase in the minimum wage reduces poverty by 2.4 per cent.

Impact on states’ growth?

Both Washington and Minnesota share confidence about future growth — and in neither case does that optimism have much to do with the minimum wage. The simple fact is that states aren’t looking to lure minimum-wage businesses.

Washington is a high-tech mecca; Minnesota, a center of medical technology. Both are future-oriented areas that bode well for the states.

But much of Washington’s optimism also is based on a new contract signed with great reluctance by Boeing workers. The contract is filled with concessions, but it keeps Boeing in the state for at least the next eight years.

Building airplanes in Seattle sends positive ripples across the state, especially in the well-paying aerospace-related industries, according to Spokane’s Hadley. Most of those jobs require skilled workers. 

“The No. 1 thing we have is the educated labor force companies are looking for,’’ said Hadley.

Minnesota economists long have said that a highly motivated, highly educated workforce has been crucial to the state’s above-average national economic performances.

At a Minnesota legislative hearing a year ago headed by DFL Rep. Paul Marquart, a number of the state’s top employers/thinkers testified to the need for Minnesota to attract a highly skilled workforce if it is to continue to be an above-average performer.

Many of the high-tech executives who spoke at the hearing — billed as the “World’s Best/Smartest Workforce” — predicted that by 2018, 70 percent of the state’s jobs will require some education/training beyond high school.

The state’s longtime state economist Tom Stinson, who has since retired, put it bluntly: “Unlike any time in history, labor and talent will be the scarce resource that all will be seeking.’’

But even if the future is all about education, the minimum wage plays an important role for those left at the bottom, according to John Burbank of Washington’s  Economic Opportunity Institute.

“The minimum wage is the floor,” Burbank said, adding that a high minimum has become more important with the huge decline of unions.

Minnesota’s minimum-wage fight

In Minnesota, both proponents of a minimum-wage increase — which include most DFLers, organized labor and other progressive organizations — and opponents — which include Republicans and business organizations — have been preparing for this conflict for months.

Last session, the effort to increase the minimum fizzled in the final days, with the House supporting a measure pushed by DFL Rep. Ryan Winkler. His measure would have increased the minimum to $9.50 by August 2015, from its current $6.25 base. (Despite that low rate, most minimum wage workers in the state receive the federal minimum, $7.25.)

In the Senate, DFLers were much more shy. In an effort to protect newly elected “business-friendly” DFLers from the suburbs, the Senate passed a bill that would have increased the minimum to only $7.75.

The two bodies could not reach agreement in conference committee, resulting in no action. That means that Minnesota remains just one of four states — with Georgia, Wyoming and Arkansas — having a base minimum lower than the federal standard.

This time around, the debate likely will become more heated, especially for those supporting an increase.

DFL Rep. Tom Anzelc, a supporter of raising the minimum, talks about “a growing, bubbling cauldron of discontent” over both the wealth disparity and the inability of politicians to address basic problems.

He said: “I came home from the session and I heard, ‘We elected Democrats in the House, Democrats in the Senate and a Democrat for governor and you couldn’t raise the minimum wage? What hope is there?”

Winkler is back again, this time “more determined and more organized than ever.”  Additionally, he expects the opposition “to be somewhat circumspect,” but that doesn’t mean passing a significant increase will be an easy task.

The Minnesota Chamber of Commerce comes into the session on what seems to be a relatively positive note. It would support raising the Minnesota minimum to the $7.25 federal level.

 But … the chamber wants all sorts of caveats in its ideal minimum wage bill: a separate youth wage for those under 18, a tip credit, a “training wage” and regulations preventing cities from setting their own wage scales.

According to Ben Gerber of the state chamber, businesses will argue that raising the minimum wage above the federal level would be an incentive for businesses to leave for surrounding states. Additionally, the chamber argues that raising wages at the bottom of the economic ladder to levels proposed by Winkler would only serve “to squeeze” wages of those in the middle class.

The chamber argument pits the poor against the middle class, not the lower classes against the rich.

And in the past, business groups have won the day, despite public opinion polls. That’s because the Capitol serves as an echo chamber, people such as Winkler believe.

The problem, he says, “is that legislators get confused with things that are controversial with lobbyists, versus issues that are controversial with the public.”

Lack of action in Minnesota is hardly unique. Across the country, legislative bodies have found safety in doing nothing regarding an increase in the minimum wage.

Typically, it has been direct action by people, bypassing their legislatures, that has created minimums higher than the federal standard.

And that explains why Anzelc is ready to push a constitutional amendment that would raise the state’s minimum wage to $10 an hour by 2015 if the Winkler bill again appears headed toward a chamber/Senate shredding.  

Anzelc admits that the DFL leadership is not exactly thrilled with his plan. After all, most believe Republicans lost control of the House and Senate with their efforts to govern with constitutional amendments. 

His response: “I’ll simply say, ‘Let the people decide.’ ”