Dave Olson, Published March 22 2013
Federal, state battles waged over minimum pay
President Barack Obama has called for boosting the federal minimum wage, but a Democratic plan to lift it from $7.25 an hour to around $10 an hour was rejected by Republicans in Congress.
Minnesota legislators are debating whether to ratchet up the state’s minimum wage, which for many companies is the federal $7.25 an hour, though certain smaller employers who meet specific criteria may pay workers $5.25 an hour.
One proposal being discussed would raise Minnesota’s minimum wage to $9.95.
There’s no push in North Dakota to raise the minimum wage.
At a time when the economy appears to be picking up steam and many U.S. companies are reporting improved profits, it’s a natural question to ask: Is it time to increase something that helps more than a million Americans keep a grip on the lowest rungs of the economic ladder?
Economists testifying before Congress this month said top corporate pay and corporate profits are growing rapidly, while wages for those at the bottom have not kept pace with gains in productivity.
Critics of boosting the minimum wage say it would stifle or shrink employment numbers as companies seek to offset the cost.
Some economists, however, challenge that view.
They point to large corporations sitting on piles of cash, some of which, they say, could be used to reward workers for improved productivity.
A recent Wall Street Journal study seems germane to the debate.
It found that 60 large U.S. companies stashed a total of $166 billion offshore last year, shielding more than 40 percent of their annual profits from U.S. taxes.
But all of that is big-picture stuff.
On a personal level, David Thorson, of Fargo, has labored for minimum wage, or close to it, for most of his working life.
‘How to get by?’
Thorson, a college graduate and currently unemployed, said no adult with reasonable expenses can survive on minimum wage.
“Nine dollars an hour is the bare minimum a person can survive on,” said Thorson, who is still struggling to pay off school loans from decades ago.
Thorson, a 1972 graduate of Fargo North High, said his first job after high school was with the railroad for $7.50 an hour.
“That was big-time money back then,” he said. He has had many jobs since then, many of them paying minimum wage, or close to it.
“How do you get by?” asked Thorson, who at 59 would like to think about retirement. Instead, he is worried about where the dollars will come from to fix the non-working brakes on the car he needs to get to job interviews.
Thorson said his credit score is abysmal, mainly due to health care bills and unpaid debts resulting from low-paying jobs and harsh circumstances.
“No extravagances here,” Thorson said.
Chuck Chadwick, president of the Moorhead Business Association, isn’t sure the minimum wage is the best way to address issues facing people struggling economically.
Chadwick, who said he was speaking for himself and not necessarily members of the business association, said lawmakers should think twice before tinkering with the minimum wage.
“We need to be very careful in Minnesota not to put ourselves into a position where we are not a competitive state,” Chadwick said.
In the past, he worked as the manager of a Kmart store.
“When I was at Kmart, each time the minimum wage went up, over a period of time we had fewer people working,” Chadwick said.
He said anytime costs go up, businesses tend to compensate by raising prices or eliminating expenses.
“You can see that in a number of different industries.” He suggested there are better tools to help low-income families cope, including things like tax credits.
The impact debate
While some businesses react to minimum wage increases by cutting their number of workers, studies show that boosting the minimum wage typically has no significant impact on job numbers, said Aaron Sojourner, an economist at the University of Minnesota’s Carlson School of Management.
“We try to look at the experience of not just one store, but across the experience of many, many enterprises all around the country,” Sojourner said.
He cited a study that looked at how businesses nationwide have done over the past 20 years. It focused on companies located across state borders from each other, including enterprises that had to deal with increases in the minimum wage and those that didn’t.
“They (researchers) looked at whether these differences in minimum wage were associated with differences in growth or differences in employment levels,” Sojourner said. “They didn’t find any detectible impact.”
While studies suggest the potential downsides to raising the minimum wage are slight, the benefits to low-income workers are significant, said Sojourner, who co-authored an op-ed piece that stated raising Minnesota’s minimum wage to $9.80 per hour would boost pay for roughly 464,000 Minnesotans.
The CEO of Costco, a large membership warehouse club with a store in West Fargo, is a vocal backer of boosting the federal minimum wage.
Craig Jelinek spells out why in a statement to The Forum.
“An important reason for the success of Costco’s business model is the attraction and retention of great employees,” Jelinek said.
“Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty.
“At Costco,” Jelinek said, “we know that paying employees good wages makes good sense for business.”
He said Costco pays a starting hourly wage of $11.50 in all states where it does business, “and we are still able to keep our overhead costs low.”
Minnesota’s minimum wage was last raised in the late 1990s.
Gov. Mark Dayton has said he likes the idea of raising the wage to something more than $9.
A bill waiting for House action puts the figure at $9.95, after it started out as a best-in-the-country $10.55. The current Senate bill would raise the wage to $7.75.
Both bills would raise the rate this year and again next year before reaching the full amount in 2015.
After that, the House bill provides for an automatic increase.
Smaller employers would pay lower minimum wages under both bills and youths would be paid less.
The Minnesota Chamber of Commerce opposes raising the state’s minimum wage for a number of reasons, said Ben Gerber, the chamber’s manager of labor energy policy.
Gerber said proposals calling for automatic cost-of-living increases are a problem.
He said the state chamber feels any changes to the minimum wage should be subject to discussion by the state’s elected leaders.
Readers can reach Forum reporter Dave Olson at (701) 241-5555
Don Davis, Minnesota Capitol reporter for Forum Communications, contributed to this report.
Raising the minimum
Ten states raised their minimum wage at the start of 2013.
The states and their new minimum wages are:
Arizona – $7.80
Colorado – $7.78
Florida – $7.79
Missouri – $7.35
Montana – $7.80
Ohio – $7.85
Oregon – $8.95
Rhode Island – $7.75
Vermont – $8.60
Washington – $9.19 (top in U.S.)
Minimum wage fast facts
• The federal minimum wage is $7.25 an hour.
• North Dakota’s minimum wage is the same as the federal minimum wage.
• Minnesota has a multi-tier minimum wage.
• Minnesota wage rules are complicated, but they can be boiled down to this: A business that has less than $500,000 in gross proceeds a year and does not engage in interstate commerce may pay employees a minimum wage of $5.25.
• As a general rule, most Minnesota workers are covered by the federal minimum wage.
• According to the U.S. Bureau of Labor Statistics, roughly 3 percent of hourly wage workers in North Dakota and Minnesota were paid minimum wage in 2011.
• That same year, about 5 percent of hourly workers in both states were paid minimum wage or less.