Humphrey School News—October 7, 2016

Minimum Wage Study Cites Benefits of Higher Pay Rate

Minneapolis, MN (October 7, 2016)—A study conducted by researchers at the Humphrey School of Public Affairs at the University of Minnesota concludes that raising the minimum wage in Minneapolis to $15 an hour would increase the incomes of some 71,000 workers and help lift them out of poverty. The study was commissioned by the Minneapolis City Council, which is considering a proposal to raise the minimum wage in the city from $9.50 per hour to either $12 or $15 per hour.

The study was led by Professor Samuel L. Myers, Jr. , director of the Roy Wilkins Center for Human Relations and Social Justice at the Humphrey School. His nonpartisan research team included the former assistant secretary of the U.S. Department of Labor and AFL-CIO chief economist; a former chief economist for the Labor Department; senior economic analysts from the Economic Policy Institute; and economics professors from Howard University, Rutgers University, and St. Cloud State University.

The City of Minneapolis contracted with the Roy Wilkins Center earlier this year to study the potential impacts of raising the minimum wage in the city to $12 and to $15 an hour over the next five years.

Researchers presented their findings to the Minneapolis City Council on October 5.

The issue is the subject of heated debate in Minneapolis, where activists are pressing for a higher minimum wage as one way to help reduce poverty and improve the livelihoods of residents. Some business owners are concerned that the increased labor costs would be difficult to absorb and could hurt them as they compete with businesses outside Minneapolis.

While the current statewide minimum wage in Minnesota is $9.50 per hour, state law allows small employers earning less than $500,000 in gross sales receipts to pay employees wages as low as $7.75 per hour.

Most workers who would be affected by the higher wage have jobs in food service, retail, non-hospital health, and administrative support. About half are people of color, the research concluded.

“Hispanic and black workers are more likely to be affected by an increase in the minimum wage, even though they are a smaller share of the minimum wage workforce,” the research team reported.

“The largest increase in earnings from a rise in the minimum wage is observed by those in poverty,” the report details, noting that “the largest represented group of minimum wage earners are not necessarily those under the poverty level, but those near it.”

The research also examined the impacts on businesses.  It found that:

  • The higher minimum wage would result in increases in operating costs for some firms in affected industries in the range of two percent.
  • For the restaurant industry, the group with the largest prevalence of minimum wage earners in the Minneapolis area, those costs would increase by around five percent.
  • Restaurant owners are likely to pass along at least some of their higher costs to consumers by charging higher prices. The report estimates that a $25 meal would increase by about $1.25 in 2021.
  • Firms would face lower staff turnover—where turnover costs are about $2,000 per worker—since employees who are paid more would be more likely to remain in their current jobs.

 Read the full report here

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