Studies: Minimum wage hike may raise prices, won’t cost jobs

Published 10:27 am Monday, March 10, 2014

By Mark Zdechlik

Minnesota Public Radio News

ST. PAUL — Efforts by Minnesota’s Democratic legislators to raise the minimum wage to $9.50 an hour have alarmed some business leaders, who say a higher wage would cost jobs and hurt economic growth.

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But proponents of a higher minimum wage say a significant wage increase is long overdue, and that workers and employers stand to benefit – a position backed up by recent studies.

That support likely is strongest among workers like Bonnie Frederick, who works at D. Brian’s Deli in the St. Paul skyway.

“It’s a good idea because there’s a lot of low income people, like myself,” Frederick said. “I make more than minimum wage — but not much over minimum wage, and I think all low income people should have some money to live on.”

Shefona Garmin, an employee at Charlie’s Convenience Store in the skyway agrees, even though she wouldn’t see her wages increase.

“There are a lot that I know of that would be affected greatly by this, and this would help them out immensely,” Garmin said.

Democrats in the Minnesota House want to set the minimum wage at $9.50 an hour. Senate Democrats agreed this week to that rate for large businesses, but oppose a provision for automatic future increases based on inflation.

Charlie Rose, who owns the convenience store, said he pays his workers $9.50 an hour to find the best employees. He said if lawmakers increase the minimum wage beyond that rate, he would see fewer profits and have to cut back on employee hours.

“I either have to take a lot less and just get by on my own, work more hours myself, which I’m kind of doing now ,” Rose said, “or just pay the minimum wage and see how long I can keep the people I’m at and see what I can get when I have to hire more people.”

The Minnesota Restaurant Association opposes increasing the minimum wage beyond the federal level of $7.25 an hour. At a recent news conference in downtown Minneapolis, D. Brian’s founder Doug Sam, one of its members, warned the move would hurt workers.

“What it means to me is fewer jobs,” Sam said.

But research does not support the conclusion that increasing the minimum wage will force employers to cut jobs.

Instead, increasing the minimum wage would help families without costing workers their jobs,” University of Minnesota labor economist Aaron Sojourner said.

“There’s some theoretical reason to expect it [but] it’s not showing up in most of the data,” he said.

Sojourner is convinced increasing the minimum wage would help families without costing workers their jobs.

“There have been a lot of careful studies of this, and the best ones show that if there’s any ‘disemployment’ effect it’s very small, and at the same time there’s very big positive impacts on working families’ well being,” he said.

A University of North Carolina story that analyzed 16 years of minimum-wage increases found that a higher minimum wage benefits workers and does not necessarily lead to job cuts. The study looked at 318 cases of adjacent counties in different states where one had a state minimum wage increase, said Bill Lester, a professor in the university’s Department of City and Regional Planning.

“What we found was that wages went up, as you would expect, that when you raise the minimum wage workers get a raise,” Lester said. “But we also found that there’s no … negative impact on jobs.”

When businesses are required to pay their employees more, the workers tend to keep their jobs longer and they become more efficient, Lesters aid. That leaves employers with reduced workforce turnover costs and more productive employees.

However, it may reduce entry-level job opportunities for low-skilled workers like teenagers.

There is also evidence that businesses pass along minimum wage increase costs to their customers. A University of California study that examined what happened when San Francisco instituted a city-wide minimum wage 26 percent higher than the state minimum wage in California nearly 10 years ago concluded that restaurant prices increased almost 2.8 percent.

In St. Paul, Garmin said she’d be happy to pay a little more at stores and restaurants if it meant the lowest paid people in the workforce would get a big raise.

“I would most definitely,” she said.