Management & Labor

Minnesota No Longer Has Lowest Minimum Wage

by | August 1, 2014
 

By Nick Woltman

Minnesota is seeing its first minimum wage increase in nearly a decade.

Starting Friday, most of the state's lowest paid workers will receive $8 an hour.

It's the first of three annual increases that will push Minnesota's wage floor from $6.15 an hour -- among the lowest in the country -- to $9.50 -- the second highest in the country -- by 2016. Beginning in 2018, it will be indexed to inflation.

The Legislature passed the wage hike in April, but it didn't happen easily. A months-long political fight ended with votes more or less along party lines in the state Senate and the House of Representatives.

Democrats argued the increase would boost the spending power of poorer Minnesotans, while Republicans countered the move would hurt the state's small businesses.

And both sides are probably right, said Louis Johnston, an economics professor at the College of Saint Benedict and Saint John's University. But it's unlikely to matter much to the state's economic well-being.

"What it does for the overall economy -- that's unclear," Johnston said. "It's more of a micro effect, rather than a macro effect."

Roughly 5 percent of Minnesota's hourly workers -- about 83,000 people -- earned minimum wage between August 2012 and July 2013. But they weren't getting $6.15; most of them received the federal minimum of $7.25.

About 47 percent of the Minnesota's minimum wage earners work in the state's restaurants and bars -- more than any other single industry.

IMPACT FOR WORKERS, EMPLOYERS

In many ways, Krysta Rzeszutek, who has worked for three years at Punch Pizza on Grand Avenue in St. Paul, is typical of minimum wage earners. Like Rzeszutek, the majority of hourly employees making minimum wage in Minnesota (72 percent) work part-time, are women (60 percent) and are between 15 and 24 years old (60 percent). Rzeszutek is 19.

Late last year, Punch's co-owners John Puckett and John Soranno, decided to raise their wage floor to $10 an hour. Rzeszutek's pay jumped from $8.25 an hour to $10.50.

"It has definitely helped everyone here with living expenses," Rzeszutek said.

Earlier this year, Soranno and Punch worker Nick Chute attended President Barack Obama's State of the Union speech in Washington, and Obama cited the company's pro-active wage move.

But as Ron Wirtz, editor of the FedGazette, a publication of the Minneapolis Federal Reserve, pointed out in a recent article, the number of people earning minimum wage -- in Minnesota and nationwide -- is steadily declining, thus diminishing the impact of raising it.

"His main point is that there's been a real change in the labor market to which minimum wage applies," Johnston said. "As an anti-poverty tool, it's not clear that it's as helpful as it used to be."

But for Rzeszutek's employer, the impact of raising its employees' wages was significant.

"Certainly, this is not a decision we came to lightly," said Jenny Nyquist, Punch's director of operations. "It's about a $3 million investment over the next 10 years. So, it will definitely cut into our profits."

TIP CREDIT

Lenny Russo, who, along with his wife, owns Heartland restaurant in St. Paul's Lowertown neighborhood, says his profits also will suffer as he raises his employees' wages to comply with the new law -- especially when it comes to his non-tipped employees.

Russo pays most of his employees well above minimum wage, he says. Only his servers earn the federal minimum of $7.25 an hour. But, he adds, with tips they take home an average of $30 an hour -- considerably more than his non-tipped employees.

A higher minimum wage widens this gap. So, when he raises his servers' pay by $2.25 over the next three years, he'll have to raise his non-tipped employees' pay a corresponding amount.

"We're not positioned very well to absorb this cost and still remunerate our employees in an equitable way," Russo said, adding that he and his wife have stopped drawing a salary for the time being. "That money needs to come from someplace."

Russo says he would support raising the minimum wage if a tip-credit provision was included -- a compromise supported by Hospitality Minnesota, a coalition that includes the restaurant, lodging, resort and campground associations.

A tip-credit allows businesses that employ tipped employees to pay them less than their non-tipped employees.

Although it was debated by the Legislature, it was ultimately left out of the final bill.

Russo, who would like to see the wage for tipped employees frozen at $7.25 an hour, is hopeful that a tip-credit provision will be written into state law during the 2015 legislative session.

SMALL-BUSINESS CUSHION

Other, similarly sized businesses will likely feel this pinch as the new law is implemented, Johnston, the economist, said.

"Franchises and chains, they tend to just absorb it," Johnston said. "The smaller firms with tighter profits, that's where you're going to see the effects."

Some may even go out of business, he added, but the net effect on the state's economy is not likely to be great.

"Those small firms come and go pretty quickly, so it doesn't really affect the employment rate," he said. "They're born really quickly and they die really quickly."

However, there is a cushion built into minimum wage law for the smallest employers. While most will be forced to pay their workers $9.50 an hour by 2016, the smallest firms -- those with less than $500,000 in annual revenue -- are only required to pay $7.75.

And there seems to be room for compromise, where restaurants and bars are concerned, at least.

(c)2014 the Pioneer Press (St. Paul, Minn.)

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