ST. PAUL, Minn. -- Conventional wisdom holds that paying workers more is generally harmful to a company's bottom line, which is one of the reasons why business owners as a group are generally opposed to raising the minimum wage.
But the author of the minimum wage bill in the Minnesota House sees it as a plus to the economy as a whole, and to businesses who sell products to lower wage workers.
"A lot of the businesses on Main Street that would pay a higher minimum wage are also going to see more customers coming in and buying more things because more low-wage workers, more working people are going to have money in their pocket to spend," Rep. Ryan Winkler, a Golden Valley Democrat, told KARE.
Winkler, as chair of the House Select Committee on Living Wage Jobs, held a hearing at the State Capitol Monday to explore the economic impact of raising the minimum wage. He invited two economists from Washington DC progressive think tanks to testify.
John Schmitt, of the Center for Economic and Policy Research, told lawmakers that laying people off isn't the only option for business owners facing an increase in the minimum wage.
"An important reason why firms don't have to make tough choices is because they typically get a large reduction in turnover, when there's a minimum wage increase," Schmitt said.
"That will mean they're spending less on recruiting and training of new employees."
Minnesota's current minimum wage is $6.15 per hour, but most of the state's lowest wage earners make the federal minimum wage of $7.25 an hour, which takes precedence in states with lower minimums.
Only Georgia and Wyoming, among states with minimum wages, have lower state minimums than Minnesota. There are 18 states that have set the state minimum wage higher than the federal rate.
A bill authored by Winkler would raise the rate in three steps, ending at $10.55 per hour in August of 2015. Winkler predicted the final number may be different depending on deliberations go in the House, and any bill passed there will be subject to compromise with the Senate version.
Douglas Hall of the Economic Policy Institute said there are scenarios, in his calculations, in which a minimum wage increase could actually lead to a very small net gain in jobs.
"The critical thing about lower wage workers is that, if you put a dollar in their pockets, they're going to spend that dollar more quickly and completely, and more locally," Hall explained.
It was an informational hearing only, so no votes were taken. The economists did field questions from skeptical Republicans in the panel. They asked whether the economist's model includes the economic impact of employers have less disposable income.
"How do you factor in the lost profits of that small business owner and his propensity to consume when he is struggling to meet is increased payroll?" Rep. Mark Uglem of Champlin asked.
"Yes, in my model I'm putting money in the pocket of a lower income person, but I'm explicitly acknowledging I'm taking money out of the pocket of somebody else," Hall responded.
"That's already factored into my numbers."
Another Republican legislator, Tony Albright, of Prior Lake, asked, "My first rhetorical question to you is, who creates jobs?"
Schmitt said a variety of factors are at play, including business decisions by company owners and manager.
Hall asserted that, in the end, those business decisions are driven by demand. And in his mind providing more spending power to low wage workers can drive that demand.
"My response to that would be, really, consumers create jobs."
At least 11 states have minimum wage rates indexed to the federal minimum, so they change automatically when the US rate increases. Nine states have indexed their rates to the cost of living.
Minnesota's has been at $6.15 since 2005.
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