Evidence on the Effects of Minnesota’s Minimum Wage Increases

Policy Brief: June 20, 2018

Noah Williams, Center for Research on the Wisconsin Economy, University of Wisconsin-Madison

Summary:

Beginning in 2014, the state of Minnesota began a series of minimum wage increases. By contrast, Wisconsin increased its state minimum wage in 2010 to keep pace with the federal minimum wage, but has not increased it since. While the effects of minimum wages changes remains a controversial topic, comparing relative outcomes in Wisconsin and Minnesota suggests that the minimum wage increases led to employment losses in Minnesota, particularly in the restaurant industry and youth demographic most affected by the changes.

Over 60% of employees in the restaurant industry in Minnesota work for the minimum wage or less, and workers under the age of 24 account for 54% of minimum wage earners. Following the minimum wage increases limited service restaurant employment fell by 4% in Minnesota relative to Wisconsin. Further, youth employment fell by 9% in Minnesota following the minimum wage increases, while it increased by 10.6% in Wisconsin over the same time period.

In addition, part of the increased wage costs employers faced have been passed on to consumers through higher prices. The relative price of restaurant food in the Minneapolis metro area had fallen by 2% in the four years preceding the minimum wage hikes, but it has risen by 6% in the four years since. On the benefit side, earnings for affected workers grew more rapidly in Minnesota than Wisconsin following the minimum wage hikes, with average annual pay at limited service restaurants increasing by 5.5% more in Minnesota from 2014-2017.

Overall, this evidence is consistent with a competitive market for low wage workers in Minnesota, with the minimum wage increases leading to labor market distortions.