Minimum Wage Hike a Bad Idea

Posted on January 17, 2013

Minnesota’s Legislature should think twice before increasing the state’s minimum wage (in the Senate version) by almost 30 percent to $9.38 (“Minnesota Legislature: Minimum wage hike, all-day K among 1st bills,” Jan. 10).

Businesses that hire entry-level employees at the minimum wage — restaurants or grocery stores, for example — only keep 2 to 3 cents in profit from each sales dollar, and can’t just absorb the increase.

And it’s not as easy as raising prices — higher costs for consumers can mean a drop in sales. The remaining option is to provide the same service at a lower cost. The result? More self-service, and fewer job opportunities for the same people the Legislature wants to help.

It’s of particular concern in Minnesota, where the base wage for employees who earn tip income (such as restaurant servers) is already a full 240 percent higher than the federal requirement. Economists from Miami and Trinity Universities found that each additional 10 percent increase in this base wage causes a 5 percent drop in hours worked.

Michael Saltsman is research director of the Employment Policies Institute.