Ryan Winkler: Taxpayers subsidize low-paying businessesFrom a distance, Minnesota’s economy looks pretty good. Last week, we finally recovered all the jobs lost during the recession, and our unemployment rate is below the national average. In 2012, Minnesota was in the top-five fastest growing states.
By: Ryan Winkler, Grand Forks Herald
GOLDEN VALLEY, Minn. — From a distance, Minnesota’s economy looks pretty good. Last week, we finally recovered all the jobs lost during the recession, and our unemployment rate is below the national average. In 2012, Minnesota was in the top-five fastest growing states.
But looking a little closer reveals some significant flaws. The median wage in Minnesota has fallen about 10 percent in the past 10 years. Workers are starting to drop out of the labor force, and a large share of the jobs we have created are part time, which makes the unemployment rate look better than it is.
A full 40 percent of Minnesota jobs pay less than what it takes to support a family of four with two parents working.
Unfortunately, this shift toward low-wage jobs is not just a temporary change tied to the Great Recession. These changes have been ongoing for more than 10 years, and with the exception of the fast-growing 1990s, most working Minnesotans have seen flat or falling wages since the early 1970s.
The ability to work hard and earn enough for a decent quality of life is slipping away for a large number of workers.
This story can be seen in the types of jobs we are creating. Retail, hospitality, and office support are by far the largest job categories, accounting for almost a third of all jobs, many of which are part time. The jobs categories that will grow fastest over the next 20 years are personal care and health care support (think nurse’s aides and nursing-home workers).
These jobs do not pay very well. In Minnesota, 80 percent of individuals on public assistance (including food stamps, child care assistance, cash welfare support and so on) are working or were working in the previous quarter. The majority of people who work and still qualify for public assistance are in retail, hospitality, office support and health care support.
The bottom line is that the largest and fastest-growing job types are costing taxpayers, meaning that the rest of us are subsidizing these low-wage industries.
Minnesota can do better. One direct step we can take is to raise the minimum wage.
Over the years, the minimum wage has not kept up with the cost of living. If the minimum wage kept pace with inflation from its high in 1968, it would be at $10.46 per hour today.
The federal minimum wage is $7.25, about a third less than past levels, and the Minnesota minimum wage is among the lowest in the country at $6.15 per hour.
If we raise the minimum wage to $9.50 per hour by 2015 for large employers, 360,000 Minnesota workers would get a pay increase. In economic jargon, these workers have a higher marginal propensity to consume with any new money they make. This means that low-wage workers spend any extra money they make because they need all of it just to pay for their basic needs.
When 360,000 workers have more money to spend, businesses benefit. In fact, many of the same businesses — such as retail outlets, grocery stores and restaurants — that pay low wages will get the biggest benefits when low-wage workers have more money to spend.
Businesses looking at increasing employee costs are understandably concerned about these changes. It is hard for them to project the benefits of 360,000 people having more money to spend in the local economy.
But the vast majority of peer-reviewed studies indicate that the increased demand for goods and services generated by rising wages offsets the higher employee costs. Think of it this way: if local Walmart employees get a bigger share of Walmart’s profits, more money will stay in the local economy and circulate among the local businesses that depend on local consumers to spend.
Raising the minimum wage to $9.50 will not, by itself, solve the low-wage crisis hitting Minnesota workers. But if we want an economy in which people can work, provide for their families, and stay off public assistance, then raising the minimum wage will help.
The alternative approach — waiting and hoping that money will trickle down to workers — is how we got into this problem in the first place. It’s time for an economic agenda to make hard work pay.
Winkler, a DFLer, represents Golden Valley and St. Louis Park in the Minnesota House. His bill to increase Minnesota’s minimum wage to $9.50 an hour has passed the House, and the Legislature is expected to again take up the issue early next year.