Local media continues to assess the 2024 legislative session. Reviewing “What labor bills passed and didn’t in Minnesota this year,” the Minnesota Reformer notes that “Minimum wage carve-outs will be eliminated:”

Virtually all employees in Minnesota will be entitled to a single state minimum wage starting Jan. 1, when a lower minimum wage tier is eliminated for employees at small businesses, employees under 18 years old and foreign workers on J visas in the hospitality industry. Those workers will see their wages rise by more than $2 an hour to the state’s minimum wage for large employers — $10.85 per hour and set to rise with inflation on Jan. 1. Tips cannot be counted toward the minimum wage.

The new law — included in a package of labor policy signed by the governor (SF3852) — also increases the cap on how much the state minimum wage can rise with inflation from 2.5% to 5%, meaning minimum wage workers will get larger raises in years of high inflation.

I’ve written before about what I called the “the real iron law of wages:”

This says that no hire will take place at a wage level above the employer’s estimate of what the employee will add to revenue. If the employer thinks the employee will add $10ph to revenue, they will pay up to that. If they pay $9.98, they are adding $10 to income and $9.98 to costs. And profit is just revenue (-) costs. The employer is making a profit of 2 cents ph.

It follows, by extension, that if this employer is forced, by law, to pay this worker $10.02ph, they will be adding more to their costs than their revenues and losing money on the hire. They simply won’t do that.

Writing about this proposal last month, I noted that:

…workers will generate different amounts of revenue. A worker with lots of experience, for example, will generally be more productive than a worker with little experience. In our example, the experienced worker might generate $10.05ph in revenue in which case it will make sense for the employer to pay them at least the legal minimum of $10.02ph. But the less experienced worker might only generate revenue of $9.98ph in revenue, in which case it will not make sense for the employer to pay them the legal minimum. They just won’t hire them at all.

This is the theory behind the empirical finding that:

Minimum wages reduce employment opportunities for youths and create unemployment. Workers miss out on on-the-job training opportunities that would have been paid for by reduced wages upfront but would have resulted in higher wages later. Youths who cannot find jobs must be supported by their families or by the social welfare system. Delayed entry into the labor market reduces the lifetime income stream of young unskilled workers.

Differing minimum wage rates by age are an acknowledgement that workers of different levels of experience have differing levels of skill. Refusing to acknowledge this reality, as the DFL bill did in abolishing the subminimum wage for workers aged under 18, will negatively impact the very people it is allegedly intended to help.





Source link