Minnesota Senate Votes to Raise Minimum Wage

Sen Jeffrey Hayden (DFL - Minneapolis) talks to press about passage of minimum wage bill. "Thrilled to help working families."
Sen Jeffrey Hayden (DFL – Minneapolis) talks to press about passage of minimum wage bill. “Thrilled to help working families.”

ST. PAUL, MINN. – Earlier today, the Minnesota Senate voted to raise Minnesota’s minimum wage to $9.50 per hour.  Sen. Hoffman joined fellow DFL Senate colleagues to pass the bill 35 to 31.  This is the first raise in Minnesota’s minimum wage since 2005.

The bill, as amended, changes the definition of a large employer from $625,000 to $500,000 in annual gross sales. As a result, the definition of small employer is also changed to employers with receipts under $500,000 in annual gross sales.

The minimum wage is defined for large employers as follows:

  • $8.00 per hour beginning August 1, 2014;
  • $9.00 per hour beginning August 1, 2015;
  • $9.50 per hour beginning August 1, 2016;
  • Beginning 2018, the minimum wage rate will be adjusted to inflation as described below

The minimum wage rate for small employers, those under the age of 18, those working under the training wage and those working under and as an Exchange Visitor (J) nonimmigrant shall be paid a minimum wage based on the following schedule:

  • $6.50 per hour beginning August 1, 2014;
  • $7.25 per hour beginning August 1, 2015;
  • $7.75 per hour beginning August 1, 2016;
  • Beginning 2018 the minimum wage rate will be adjusted to inflation as described below

Inflation Adjustment

The commissioner will make minimum wage adjustments based on the implicit price deflator, which is based on national data for personal consumption expenditures. The commissioner will use the lesser of either the calculated rate or a maximum of 2.5%. The adjusted rate shall be implemented on January 1st.

If economic indicators are suggesting a downturn in the economy, the commissioner has the discretion to suspend the inflation increase after consulting with the commissioner of management and budget. However, prior to suspending the increase, the commissioner must hold a public hearing. In the year following a suspension of inflation, the commissioner may make an adjustment based on inflation as well as an additional adjustment for the year lost to the suspension. Under this scenario, the cap of 2.5% would not apply.

General facts about minimum wage

  • A full-time worker (40 hours a week) in the U.S. making minimum wage earns only $15,080 a year. For some context, median individual earnings are $40,404 a year (BLS), while the U.S. poverty level is $23,550 (HHS). Full-time minimum wage earners make 62.7 percent less than median income and are 36.0 percent below the poverty level.
  • If minimum wage kept pace with productivity increases since 1968, it would be closer to $20 per hour and a minimum wage annual salary would be $41,600, higher than the U.S. median. If the minimum wage kept pace with the earnings of the top 1 percent, it would be higher than $22 per hour, or about $45,760 yearly.

Current Minimum Wage

  • In Minnesota, businesses that generate $625,000 in gross receipts or more must pay at least $6.15 per hour.
  • For businesses under the $625,000 threshold, the minimum wage is set at $5.25 per hour, while the training wage is $4.90 per hour.
  • Most businesses employees in Minnesota fall under federal law because they have receipts over $500,000 or they participate in interstate commerce.
  • Minnesota is one of four states with a state minimum wage rate below the federal level.

Increased Minimum Wage FAQ

Why is $9.50 important?

  • Raising the Minnesota minimum wage to $9.50 an hour would improve the income of 357,000 working Minnesotans across the demographic spectrum.
  • It would increase annual consumer spending power in Minnesota by $472 million, giving a much-needed sales boost to local businesses.
  • Indexing the new $9.50 wage to inflation would help ensure that the wage would maintain its value over time, rather than again falling behind the cost of living. – Jobs NOW Coalition

Why $9.50?

  • Minnesota established a statewide minimum wage in 1973 at $1.80 per hour. If you indexed that rate to inflation, minimum wage would be $9.52 today.

How many people will be impacted by a minimum wage rate of $9.50?

  • From July 2012 to June of 2013, 352,000 people held minimum wage jobs that paid less than $9.50.

How many people get paid $7.25 or less in Minnesota?

  • 101,000 jobs paying $7.25 per hour or less in Minnesota
  • 83,000 workers held a ‘main’ job that paid $7.25 or less

Who makes minimum wage?

  • 40% of all hourly workers paid the minimum wage or less were 25 years old or older
  • 28% were working full-time at jobs that paid minimum wage or less
  • Among those 20 or older, 58.4% of the workers who were being paid at or below minimum wage had at least some college experience
  • 60% of minimum wage workers are women

Won’t this hurt businesses?

  • The data is mixed. A number of studies show a link between a higher minimum wage and higher unemployment. But many others, such as a recent paper from U.C. Berkeley that studied differences across state borders, have found no effect at all. It appears that hiking the minimum wage by a buck or two does not worsen unemployment in any noticeable way.
  • We know costs have increased. However, for some reason we fail to acknowledge that costs have also increased for those that can least afford to make adjustments.

Which states have a higher minimum wage than the federal minimum wage?

Several states have set their minimum wages well above the federal rate:

  • California will raise its minimum wage to $10.00 an hour in 2016
  • Washington raised its minimum wage to $9.19 an hour and pegged it to rise with inflation
  • Oregon’s wage of $8.95 an hour, also pegged to inflation, will easily surpass $9.00 an hour by 2015
  • Connecticut’s wage will be $10.10 an hour in 2017

 

Inflation FAQ

Why include inflation?

  • The cost of goods and services increases every year. We accept that, but for some reason, we believe that an increase in the minimum wage is unacceptable.
  • By including inflation, we eliminate the need to revisit this issue and allow businesses to plan long term for their expenses instead of making knee jerk adjustments to the minimum wage rate.

What is the Implicit Price Deflator?

  • It provides a comprehensive measure of types of goods and services that are purchased by households. Thus, for example, it shows the portion of spending that is accounted for by discretionary items such as motor vehicles, or the adjustments that consumers make to changes in prices such as a sharp run-up in gasoline prices.

Implicit price deflator vs. CPI?

  • The implicit price deflator includes a wider range of goods and services.
  • The implicit price deflator accounts for substitution bias by using the actual quantities of goods and services households purchase over time in the calculation rather than using fixed quantities.
  • The minimum wage was $5.15 in 2004. Using the CPI as an index, it would be $6.35 today, whereas using the implicit price deflator, it would be $6.16. That’s about a 3 percent difference over 10 years, with the gap widening over time.

How many states make adjustments for inflation?

  • There are 10 states (AZ, CO, FL, MO, MT, NV, OH, OR, VT, and WA) that have minimum wages linked to the consumer price index. Because of this linkage, the minimum wages in these states are increased each year, generally around January 1st.
  • The exception is Nevada, which adjusts in the month of July each year. Effective January 1, 2014, 9 of the 10 states increased their respective minimum wages. The exception to that was again Nevada.
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