(00:00:00) This week legislators are expected to take up a bill which would significantly raise the minimum wage in the state of Minnesota. Right? Now. The minimum wage is four dollars and twenty five cents an hour, which means that a full-time minimum wage worker earns eighty eight hundred and forty dollars a year under Bill proposed by dfl state. Senator, Randy Kelly, the minimum wage would be increased to six dollars and fifty cents an hour by July of 1996 an annual full-time wage of about $13,500 now supporters say an increasing number of people can no longer make it even if they work for full time. They note that the minimum wage has failed to keep up with the rate of inflation pushing workers further and further into poverty, but opponents argue that raising the minimum wage will make Minnesota business less competitive destroy jobs and fuel inflation. Today. We're going to spend the hour discussing the pros and cons of raising the minimum wage Jim similar, who is the chair of the Comics department at Macalester College in st. Paul has been good enough to come by Professor similar was a member of the Kennedy administration's Council on economic advisors Professor. Thanks for coming by sure. Appreciate it. Yes, sir. Before we get to the caller's would like to talk with Senator Kelly and Senator run BEC both of whom were going to be here in our Studios, but they've been tied up at the state senate with pressing Senate business, but I've been able to take a couple of minutes here to talk a little bit about this issue. First of all, Senator Kelly. Thanks for joining us. My pleasure. Can you give us in a nutshell your reasons for for proposing this increase in the minimum (00:01:37) wage? Sure why four basic reasons why I think the minimum wage ought to be increased this year. First of all, we've not raise the minimum wage in Minnesota for three and a half years and secondly the purchasing power of the minimum wage between 1980 and 1992 has dropped dramatically. Thirdly, we are discussing as a major priority here in the legislative session welfare reform and it seems to me that we must as part of the equation of welfare reform. We must talk about the kinds of jobs and the kind of pay that people will receive if they are to move out of poverty and move off of welfare and we have to look at what the cost of meeting basic shelter energy food clothing costs are in the fact is it needs to be more than what the minimum wage is today fourthly here in the legislature another major priority as a whole crime issue and I happen to work in that area a lot in terms of trying to come up with strategies to deal with combating crime and so on the fact is that we cannot seriously look at that issue in divorce it from what what kinds of jobs and what kind of pay people are receiving in in our state. There's a lot of evidence that suggests that that that crime is directly related to poverty. And so that in those instances where there are areas where there is poverty around the state you tend to find higher crime rates. And so for those four reasons, I think that it's important that we publicly debate and discuss the issue of bringing the minimum wage. Essentially. I don't really call it a raisin raising it what we're essentially doing is trying to restore the purchasing power of the minimum wage has had since 1981 and has dropped dramatically and we need to try to restore it (00:03:40) Senator. One thing we were not able to determine was just how many people would actually be affected by this bill. A lot of people are covered by the federal minimum wage others by the state minimum wage and state bureaucrats were unclear this morning. Just who would be affected, you know up roughly how many people would be (00:03:55) affected? Well, the figure said I and it is it is difficult to look. That information and I've not had much more success than you have. I know this that we are somewhere in the neighborhood of about 250,000 people in this state are affected by minimum wage. And so that generally roughly I think a quarter of a million people (00:04:18) what about the idea sir that this creates an island if you will that Minnesota will would have a much higher minimum wage than surrounding states and that if the minimum wage is to be raised it should be done at the federal level. (00:04:31) Well, then argument is always used the fact is that the feds have not in recent history the last 30 years recent history have always lagged behind what states have done we have seven states in the District of Columbia. Now that has a higher minimum wage in either Minnesota or the federal level Iowa for example has a minimum wage of four dollars and sixty-five cents an hour. So the fact is we will not be in Ireland the other the other fact I think is this is that Sconce and watches us closely. I've authored minimum wage increases since 1987. Generally when we do something surrounding states, look at that impossible and follow suit and so I would say that we are not going to be an island and that we ought to be doing it federally. Yes. That's true. I have to excuse myself for one second. I have a vote. I have to make on the senate floor. If you could, excuse me for one (00:05:24) second, that's fine Senator. Let's talk with Senator run back for a few minutes. (00:05:27) Anyway. Hi Senator. Hi there (00:05:30) General under run back of Circle Pines who owns a small business in Rochester, you are not so enamored of raising the state minimum wage, right? (00:05:39) Well, you're right. I'm not I think there are some options that are being made that I don't think we can accept and one is that the market system is not working. I think there is plenty of evidence that the market system does work. That is it does respond and raise wages if that's if that's required and I've just talked to a A large retailer just last week who in the Twin Cities area realized that the $5 starting wage that they were paying their Distribution Center workers was not generating the kind of employees in the kind of response. They wanted and in fact, they raised it $1 just recently 26. So the market system is working assumptions. Another assumption is that people are actually living on minimum wages for a long time and consider it full-time permanent employment. And I think we are safe in saying that that for the most part minimum wage workers are teenagers their students. They are women who want flexible hours and part-time work. They are Homemakers re-entering the job Force and and our seniors. So in fact numbers that I have suggests that only 7% of those people on minimum wage are actually in the are adults between the ages of 24 and 65. (00:06:55) Do you think those Senator that people who do work full-time at? Minimum wage should be making more money. (00:07:02) Well again, I believe that the market system works those people who have I mean this is truly for for people who have no experience and no training and it really is a first first job an entry-level job and employers that I speak to who do pay minimum wage make certain that there are rapid increases if the employee is meeting expectations, maybe three times a year. They would have a chance to have a raise and if you're experienced at all, you're not likely to receive a minimum wage (00:07:35) payment. What do you think would be the worst thing that would happen? If in fact Senator Kelly's legislation would pass. (00:07:43) Well, it represents a tremendous amount of government interference. And and for that there are real consequences think the most serious thing is that there is going to be a lot of disemployment. That is salary or hiring freezes reduce benefits. Layoffs companies who simply won't hire etc, etc that we will really lose jobs and you know who that impacts are those the people the young folks and those entering the job for us that need a good job. They need a first first job to really start to build a work history. So I think that's one of the most serious things that will do it will also hurt retailers because in general they they're the folks that experience the most competitive situations and they call themselves the people who are the penny make the penny profits that is on one dollar of sales price. They make one penny and there's not a lot of squeeze room and what they may see especially in small towns with small retailers is that their customers will go 20 miles away to find someone else to shop with Excuse me. This is Senator Kelly my (00:08:53) on yes, very briefly here and then we want to get some (00:08:56) ghastly. I just want to refute a couple points that send it to run buck. At first of all according to the Bureau of Labor Statistics 70% of all minimum wage workers are adults person 20 years of age or older so nearly half in nearly half for adult women. So it this is this idea that we have a bunch of teenagers out there in minimum wage in this is pin money for women going out there supplementing the family budget is really a misnomer. Secondly according to the Bureau of Labor Statistics indicate that 27 percent increase in the minimum wage in 1991 had virtually no effect on the number of jobs. So, you know, you can use all kinds of Statistics anywhere that you want. But the fact is this is a couple of the points. I really challenge Center run back home because I don't believe they're accurate Senator Kelly if I might I think there's a point to be made about the 1989 minimum wage increase and that is that the market had waited. I think seven or eight years without making any increases in that and therefore the market had Itself already above the dollar limit that it was set at so in a sense the market was ready for it. It had already responded and so we didn't see a lot of of dislocations simply because the minimum wage increase but you're talking about raising it from 425 up to 650 and two years and I think the market will not be ready for that and it will cause considerable (00:10:21) dislocation should be a lively debate to do the two of you agree on the prospects for passage (00:10:28) around I think it probably will pass. Well, we have obviously Senator run back and I agree in terms of the job loss or dislocation. I don't think that's going to happen. I think that the reason we phase in minimum wage increases is to try to avoid that. I think that the market is in fact ready for an increase in the minimum wage I go around and take a look at at fast food restaurants and fast food places and so on and at least in the metropolitan area these places are More than four dollars and a quarter today because they are having a hard time getting workers to come in at at that level. So I tend to think that the market is ready and prepared for a higher minimum wage. But yes, I think that if we work hard the bill will pass this legislative session the Speaker of the House supports and is a co-author in the house on the bill with the representative rookie Veena and the majority leader in chairman of the jobs committee is co-sponsoring this bill in the Senate. So I tend to think that it has good support. Thank you Senators. You better thank you. We look forward to listening to the debate if we (00:11:37) can recreate it, Senator Andy Kelly from st. Paul and Senator Linda run back of Circle Pines here in the studio is Jim similar, who is the chair of the economics department at Macalester College in st. Paul Professor want to get some calls here in a minute, but first of all, if you could clarify for us, what is the theory behind the minimum wage? Is it supposed to support somebody? One person working full time is it supposed to be able to support a family if one person is working full time is just supposed to be pinned money as we heard kind of supplemental wages. What is the minimum wage supposed to be when the federal minimum wage was introduced about 55 years ago. The notion was that it was an anti-poverty piece of Law. And since then there have been many other anti-poverty pieces of legislation that had probably even more effective problem with the minimum wage is that as Senator run back points out that if it is raised and all other things are unchanged then there has to be some loss in employment and it and it turns out that the biggest losses are on those that that need jobs the most in a sense the young the inexperienced the unskilled and it is true. That with the passage of time after the wave minimum wage, which is denominated in dollars with the passage of time after some inflation takes place. Then the real wage that is the purchasing power of the minimum wage that real wage drops and employers are more inclined to hire workers back, but there is an initial period in which there is a shock a downward shock to employment amongst the teenagers and the the inexperienced in the unskilled people, but for the for the person who does is lucky enough to get one of these jobs, are they supposed to be able to support a full whole family on this just themselves themselves with some help somehow from somewhere else. What's I don't know. I don't think that that is the whole story at any rate. It may be part of the story. The federal minimum wage is currently at I think four and a quarter an hour and that translates into what about In Thousand a year 8840 8848 year and if somebody has a family three or four children so forth that isn't that's well below the poverty line and I don't think that that that is the message anymore. I think it's more the fact that we've had 55 years of this. There's no way that the federal minimum wage law is going to be repealed and I suspect there's no way the Minnesota minimum wage law is going to be repealed so that every every so often a catch-up is legislated that is to bring the real or purchasing power minimum wage back up to some fraction of average wages. Is there a formula that you could bring to this discussion, you know, if you raise the minimum wage a dollar an hour, you'll lose X number of jobs there any formula like that that exists researchers have done a lot of work on this. It's one of the Favorite topics of of economists and they found without any question that the minimum wage does re loss A does does real result in at least initially a loss of employment and the estimates tend to tend to center around something like this for every 10% increase in the minimum wage about 3% loss of jobs. That's not as important. However, as where the jobs are concentrated the ones that are lost and as I said before it's mostly on the young the inexperienced and the unskilled there are lots of other people that aren't directly affected by the minimum wage that is to say their current wage is well above the minimum and if they if it has any effect at all it is to raise their wages to the extent that they are substitute workers for the young the unskilled and the inexperience now, Tried kind of two-tier minimum wage approaches where younger people got paid less than sort of the official minimum wage and then we scrapped that why did we why did we set that aside to didn't work or unfair illegal? What was their decision there? I don't know exactly why it was scrapped. It probably wasn't a good idea to begin with the idea was to have a lower minimum wage for teenagers and lots of lots of people objected to that particularly the union movement objected to it in on the grounds that it would set father's competing against Sons for jobs or Mothers Against orders for jobs and difficult to administer it hits Max of unfairness other two-tier wage systems in the Airlines and so forth have not been very successful. So I think it was probably The an idea whose time hadn't come and perhaps never will come. Hmm. Let's bring a listeners in on this we're talking now with Jim similar who's the chair of the economics department at Macalester College in st. Paul taught for years and years the University of Minnesota. He was served on Kennedy administration's Council of economic advisers. We're talking about proposal to raise the minimum wage in the state of Minnesota. And as you heard a little earlier, there's some talk that it has a good chance of passing this year. Incidentally. There's also a proposal sponsored by Minnesota Fifth District Congressman Martens able to raise the federal minimum wage to six dollars and fifty cents an hour as well. Let's go to our first caller. Hi. (00:17:42) Hello. Yes. I just have a comment in a question. I was going to mention that Martin stable has proposed this as well as labor. Secretary Robert Rice the real wages the amount of money that the minimum wage can buy has really gone down over the past. Twenty years and the argument about the free market seems to me not very persuasive. We wouldn't have any child labor laws or occupational safety or even protection of the workers rights to organize if we simply left it to the private system and I guess I have two related questions going back to an earlier comment. What is the relationship of the current minimum wage to the poverty level the Working Poor being able to come up to the level of poverty and with the corporation's relying more and more on hiring temporary workers or part-time workers. Don't more and more workers depend on the minimum wage to give themselves a meaningful standard of living. (00:18:46) Okay, first of all relationship the minimum wage to poverty levels and the rest. Well minimum wage is currently about four and a quarter. I think federal minimum wage and that translates into 8840 annually and that's several thousand below the poverty level for a family of four. Now it we did make a call on this now. This is kind of an interesting figure because I thought it would be much higher turns out that the for one person. Now the federal poverty rate for one person in the Twin Cities is about 58 hundred dollars. So theoretically the minimum wage you're living on easy street by comparison and I was surprised to hear that. I didn't know that either I was talking about a family of four, right? I'm not sure the number but I my my guess is around 11,000 something like that. Now in terms of temporary workers, how does that I would think according to the caller hear his question being wouldn't that increase the importance of having a good high minimum wage? Because so many temporary workers are called in the workforce. Well, even even temporary workers and part-time workers have to justify their pay and if the wage rises from four and a quarter to six and a half and there are no other changes and if somebody was barely employable at four and a quarter, then they're not going to be employable. It's six and a half. But does the market can the market fairly regulate this process or doesn't it have the effect of holding holding the wages down or well particularly low skilled people you use the word fairly and and that's the key. I think the way to look at minimum wage laws is that it's an attempt to introduce in some way some fairness into the into the job market. I've always felt that the that the primary significance of minimum wage laws was to set a standard a non-economic standard but a Humane standard that in some sense. It's not Humane to have somebody work today for less than four and a quarter an hour the effects that I'm talking about are have nothing to do with fairness. They're just there. The price of something goes up and nothing else changes than the quantity purchased will go down. Is there a way to determine that Humane level that you're talking about is is there a magic formula for that? That's what we elect Senators Kelly and run back. Let's go back hummus have nothing are no better than you are. Let's go back to the phones other callers on the line. (00:21:44) Hi. Hi. Yeah. I just want to follow up with what you're saying there. I think it it's Senate cynical to approach welfare reform and the current state of affairs looking at harsher criminal justice sentencing and so forth will not make it possible to find a job that pays a substance subsistence level and I think the private sector has certain moral and social obligations to be a good citizen and Community partner and be able to offer decent paying (00:22:15) jobs in terms of in terms of a trade-off sir. What would you what would be your Reference if in fact, it's true that if you raise the minimum wage you eliminate some of these low-level entry jobs. Is that a fair trade-off in your mind? Still there? Well, I think we lost him. I think we lost him. It'll be a question. We'll put the somebody else as we move along here. Well, it's a quiz. It is a trade-off if if the wage goes up some people are going to lose jobs and the people who keep their jobs of course are going to be better off so that if the gain to society from the people who keep their jobs offsets the loss to Society of those who will not be able to work at the higher minimum wage if that gain exceeds the loss then I suppose you could say it's the trade-off works. Now you said before that that sometimes the the market kind of catches up eventually. Is that true what I said what I said and I think what Senator run back was saying is this that when when the Congress or the state legislature raises the minimum wage the initial shock, is that the ratio of the money wage To the general price level goes up. We call that the real wage or the purchasing power of the money wage and it's that rise in the real wage that causes employers to reduce either the number of people they have working or to reduce the hours that people work or both. It is no different than when the price of anything else goes up and nothing else changes consumers reduce their purchases on this item or that item whatever whichever is affected after a passage of time. The money wage the minimum money wage stays unchanged but prices rise. And they rise more or less slowly or more or less quickly in any event the ratio of the money wage to the price level drops and the further drops the more employable people become how to callers on the line to a join the conversation. Hi. (00:24:32) Hi my statement than a question. My first statement is disagreeing with this idea that young people need that can survive on these low-income jobs and get ahead. It's hard for young people to get a job and get somewhere on such a small minimum wage here. They need Transportation need to build up their life so they can move on to a job at a higher level with work that when they have more experience that's difficult if they're making so very little and their and their spending power is so small also, what about those people who already are in those minimum wage jobs that have earned that, you know, six months to raise or one year raise that they're earning maybe five twenty five thirty when the minimum wage has raised. They lose all that additional income. He shouldn't stores or Employers in Creative Learning a dollar above minimum when the minimum raises bump them up a dollar more than the minimum because of the the learned that through being a hard worker and things like that. Is there anything in the bill? Is there anything to do? Why do players do that? Because that happened to me in high school. Well, there's nothing in the bill that (00:25:39) would allow for that. But now what historically what's happened the market Works in most respects in the following way if the let's take it let's make extreme assumption here that there are only two kinds of workers unskilled and skilled if the unskilled wage goes up Say by an increase in the minimum wage that will make the ratio of unskilled laborers cost to Skilled laborers costs go up and so employers to the extent that they can may very well try to substitute skilled workers for Skilled and that effort will drive up the skilled wage. Let's take another caller with a question or comment hi. Hello. (00:26:25) Yes. I'm calling from Rainier Minnesota on the minimum wage. Yes, people that work for minimum wage. They on in a real Bridge settled Community rural community that that minimum wage stays at that level for people that have worked there for years and years, maybe eight ten years and see if they work in a restaurant the minimum wage the average hamburger and Anna a medium quality restaurant and small town is approximately 4:20 to 495 an hour. Their minimum wage can't even buy them a hamburger with French fries. And if you stay at minimum wage, that's approximately 800 a month. You take the the even if you're single that it's worse because the you take off your taxes and everything, but even a Single person you have to pay approximately two to three hundred dollars for an apartment and then your food and there's no such thing as owning a car if you get if you need car tires or something, you're stuck and you're in this cold North Country like for for teenagers. It's not extra money that they're working for their if they only works like at a fast-food Place their work is only two three hours, but maybe they're their gas money to get their plus of the distance that they have to travel plus if they have a car they need insurance and they're young so their insurance cost a lot and so 445 dollars an hour. It doesn't even cover the pay for their gas and their time so (00:28:17) you think it would be worth it. If if at this restaurant we were talking about if the minimum wage were Creased and the restaurant therefore had to choose between raising the minimum wage and or laying off a few people would it be worth the increase in wages? (00:28:36) It evens out because in lot short term is sort of a shock then they adjust their prices but in long term, if you keep people without purchasing power, we are trying to help on the we do our medical plan but a person that's making just approximately maybe clearing 700 month either single are we children are not able to buy cars or insurance or they're not able to return anything back into the community. (00:29:16) This gets us back Professor. I think to where we started on this and that is what is the theory behind the minimum wage is it supposed to is a person? Post to be able to make enough to support a family on this minimum wage as I said in 1938, that was the notion but I don't think it's an ocean anymore. I think it's very simple its to provide a floor below which Market wages shall not fall. And secondly, it's it's a statement that it's just not right in some sense to ask somebody to work for less than the minimum wage. And therefore it is illegal, but the caller is perfectly correct a minimum wage of four and a quarter or even six and a half is not going to cut it for most workers and most families. It's simply as she says after after taxes and so-called necessary expenses, and there's there's little or nothing left and the only way out of that far as I can see is for the economy to grow faster than it has been and you think that wages would keep up. That if in fact the economy grew because recently we've seen the economy come back pretty strong productivity increasing we always heard by golly and we get that productivity up things will be better and and things have gotten better, but they're virtually no jobs being created if you take the Long View and of course, it's difficult on any given day a rainy Monday or otherwise to take the Long View for a century and a half or more. Our economy has grown at roughly two-and-a-half to three percent annually on the average and real wages that is purchasing power wages have kept pace there are times when they don't and there are times when real wages move faster than the growth of the economy. But in the long run and on the average, that's the only way for real wages to increase real wages in the long run cannot increase any faster than the growth rate of the economy. And in the long run, they won't increase any more slowly than the growth rate of the economy minimum wages are no minimum wages. Let's take another caller with a question or comment. Hi. (00:31:37) Hi. I have two comments or two questions rather one is that we are economy is in fact growing faster than the than the average and we still are the most the most of the jobs that are being created. That is the majority in Minnesota last year only one in five jobs that were created even got above seven dollars and fifty cents an hour. So I think that there are some some old assumptions and old theories that that really aren't working here in Minnesota anymore. And those figures come from the Department of Jobs and training the other I think important fact is that to studies the Princeton and Harvard studies on the 1991 raise in the minimum wage both showed that not only did were jobs. Not lost but jobs were in That created I think with our changing economy economic theories are not working anymore. And I think the best example of that is that between 1980 and 1989 T2 during a during which period of time the minimum wage Rose by 37 percent average executive pay Rose 511 percent and I think we will see a raise in the minimum wage when when the public Demands a raise in the minimum wage and not before (00:32:55) have we Professor similar we moved the on some of the theories are those comments are very very very good and they're correct. Let me say this this is one of the times That the growth of real wages is not keeping up with the growth in the economy with the growth of Labor productivity in the economy. As this has happened before and it will happen again, but right now you're absolutely correct. The growth of real wages is more slowly than the than the growth in the economy of hope this will change. This is a there's something going on. I don't fully understand it and I doubt if many people do secondly the Princeton Harvard studies that you referred to about the effect of an increase in minimum wage has leading to an increase in employment. They were made by Alan Krueger and Larry I think cats and they refer to a very particular study. I think these were fast food places in Nevada or something like that and they can't figure it out either they expected to find A reduction in employment and I don't know any more than that, but it seems to me that there was something else going on at the same time. You can find studies of minimum wage like the effects of minimum wage legislation going back to the 1930s and early 40s when it was kind of routinely found that an increase in the minimum wage was associated with rather large gains in employment, but that was easily explained because World War II was busting out all over the place and government expenditures were were fueling the economy. There were tremendous increases in the demand for labor and despite the increase in the minimum wage employment grew as far as far as the third point on the distribution of income. I think you're right on there is something amiss here workers at one end of the distribution are receiving small or practically no increases in real wages and workers. Executives at the other end are receiving increases in real wages that that in the three digit percentage wise there have been suggestions Martin Sable has won as a bail in Washington which would which would tie the tax deduction for wages at the highest levels to the amount that the people at the low level lowest level at least 25 times if the lowest paid worker was getting $10,000. The executives couldn't get paid more than $250,000. Well, I could get paid more but you couldn't take a claim a deduction for that. How would that disrupt the economy? I haven't seen the bill, but from what you said about it and what I've heard about it. Yes certainly would disrupt the economy how seriously I don't know but I'm quite sure that any Bill written in that way we'll have loopholes and there will be other forms of compensation to pay. Top-level Executives there already are let's take another caller. (00:36:13) Hi. I'm calling from Faribault Minnesota. And I like to expand the the debate a little bit to address the problem of what is some people have called the mick jobs situation. This is the proliferation of part-time jobs where businesses divide their work. So that almost nobody has a full-time job. I'm wondering what would be the effect of instead of just looking at minimum hourly wage. We began to look at a minimum weekly wage or minimum monthly wage perhaps this might encourage employers to have jobs that not only paid a fair hourly wage, but also made it possible for a person to have continuing full-time employment with that company. (00:37:01) Let me ask you sir before Professor similar comments and I think employers have an obligation. Pay people enough to live on. (00:37:10) Yeah, I do why well because it's morally right it's just but also because if they don't do that, they don't have any right to complain when their employees have a bad attitude about the work when they are unproductive when they're unreliable. (00:37:27) I understand the second part about that of that sure but why is it that why does an employer have any kind of moral obligation to do anything other than higher his or her workers at the basically the lowest level pay level again? (00:37:43) Why does an employer have the moral obligation, right? Because they're utilizing that person's labor. They're taking something from them and that has value. And because they are taking that from them they are then obligated to return to them something which will enable them to continue not only to provide that work but also to live their (00:38:08) lives Professor. Well, I can't comment on the on the morality of it. But as as to the notion of a minimum weekly wage or a minimum monthly wage or even a minimum annual wage. I don't think we've really tried that in this country. Although some years ago labor unions pushed for in terms of collective bargaining pushed for guaranteed annual wages, not necessarily at a minimum wage, but guaranteed annual wages in the sense of minimizing or preventing preventing layoffs. It seems to me that the effect of a of a minimum monthly wage would be somewhat the same as the effect of a Hourly wage employers would adjust they'd have to think things out differently, but they would adjust in the same way that they do to a rise in the minimum hourly wage. They would hire as many workers or as many worker hours more exactly as we're profitable and that would be the end of it if the minimum if the minimum wage whether hourly weekly or monthly if that wage was binding in that in the sense that at the margin employers would have to lay off or or dis employ workers. If it was binding then it would be binding whether it was an hourly weekly or monthly minimum wage. You think employers working on a on a weekly or monthly basis would be more inclined to offer their workers benefits health care benefits, for example, no one of the things that suffers from a when you have an increase in the in the minimum wage that That is minding that is to say that affects people one of the things that suffers in one way of adjusting instead of laying people off you might cut or eliminate their fringe benefits what we're what employers look at is not just the wage but the total cost of employment and the total cost of employment includes the money wage and the money value of the whole set of fringe benefits that that workers might receive. So one way of adjusting to a higher minimum wage is to reduce or eliminate the fringe benefits. This is midday coming to you and Minnesota Public Radio. We're talking about a proposal that's been introduced at the state legislature. And which in fact has a pretty good chance of passing to raise the minimum wage in the state of Minnesota to six dollars and fifty cents an hour Our Guest today is Jim similar who's the chair of the economics department at Macalester College in st. Paul. Let's go back to the phones of the callers on the line. (00:40:51) Hi. Hello. Yes. Go ahead. Yes. I'm calling from Minneapolis. I'd like to ask your guests about his opinion about the idea of reducing the work week. It seems that even globally we hear that there's sort of a unemployment and underemployment problem and I'm wondering since over the last 30 years. We can all agree that our society has gotten quite a bit richer if it wouldn't be the best solution just to say okay. Everyone's going to work a little less. I think that helped provide employment for everybody and be an effective way to redistribute. Good question versus (00:41:27) that's very interesting again. Let me take a long look back at economic history in this country. That's exactly what's happened up until quite recently with the with economic growth gains and labor productivity Rises and real wages. One way of assimilating that has been to reduce hours of work. Now, it's true that there's been a kind of floor underneath the 40-hour or 36 hour week that you don't we don't call a worker full-time anymore. Unless the workers working at least 35 hours a week, but there are other ways of reducing hours and these have taken place the idea of breaks during work time a coffee breaks. They were called during World War II World War II sick leave vacation time. Entry into the labor force takes place later than it used to exit from the labor force takes place earlier. There are all kinds of ways in which hours of work over a workers lifetime have been reduced. This. This is one way of taking the gains of increases in real wages income is another way and people people get their satisfaction or as we say their utility not just from income but from Leisure and there's been an awful lot of leisure added on average in this in this country now now what's going on in Europe, which has greater unemployment problems recently than we've had is an attempt to negotiate downward downward reductions in the work week. The stumbling block in such attempts is always what happens to wages. You keep the same wages while you reduce hours. 42:30 or do you make a proportionate reduction in wages? If you make a proportionate reduction in wages, then workers end up with less income but more Leisure and they may prefer that but at the same time jobs open up and some of the unemployed will receive those jobs and that is one way of handling the problem of unemployment but it depends on workers being willing to reduce their weekly pay in return for a reduction in weekly hours take another caller with a thought or question on the minimum wage. Should it be raised or kept word is hi. (00:44:08) I am really surprised to hear the previous comment that we have our workers in the United States have a lot of leisure time. I think there have been books written about the fact that American workers have so much less Leisure and so much longer hours worked per week compared to European and Japanese economy fewer holidays much shorter vacation and an enormous amount of overtime. But anyway, my question is I really think that this problem of minimum wage being too low should be solved by heavily tax income income and compensation at the higher end and using that money to add a few dollars an hour to the minimum wage so that the government would artificially sort of subsidize the minimum wage with money obtained in taxes from people who are getting these huge compensation packages (00:45:02) pressure. Is there a way to capture that money and and it's an interesting idea. Let me comment first on Leisure. I was referring to Leisure as time not spent at work. And secondly, I was comparing Leisure today with Leisure a hundred and fifty years ago or a hundred and twenty-five or even a hundred years ago. There's no question that people have more Leisure today than they did in say 1860 or 1875. On the on the taxation of high incomes to subsidize people with low incomes. That's the whole notion behind a progressive income tax and in principle, that's what we've been doing for years and years and years. Although not successfully it would have to be the legislation would have to be written carefully. It seems to me and administered probably even more carefully so that the compensation taken by means of Taxation at the high end of the income distribution actually found its way into the pockets of people at the low end lower end of the income distribution. It is a way of evening out the distribution of income which has in recent years. I think become badly skewed do they do the people at the low end the minimum wage workers pay enough in income taxes, where if the government just said, you're not going to pay any more income tax. Would that give them enough in pocket in the money? Your pocket to essentially increase their purchasing power without messing around with the minimum wage. I don't know the tax law that well. I don't know how or even if it affects people who earn only the minimum wage and work full-time 8840. I'm not sure but we already have a provision in the law that rebates to low-income workers taxes that that they either have paid or would have paid and and so that's another way of handling this problem. It's not in contradiction to what the caller recommends namely taxing raising the tax rate on high-income people and taking the proceeds giving the low-income people what it's what that's called technically is the negative income tax. That is you established some level of income below which people not only pay no tax but receive a subsidy the subsidy comes from Raising taxes at the higher and higher end of the income distribution we've got time for at least one more caller. Let's go back to the phone's. Hi. (00:47:33) Hi. I just wanted to make a comment about the 425 figure that's being thrown around the federal law, but that's not quite true. The federal law is it's 425 for businesses whose gross income is 360 some thousand dollars a year or more for most of the small businesses outside of the Twin Cities area. They don't grow that much. So minimum wage when you get outstate, Minnesota is four dollars an hour (00:48:03) had scrapped that I thought they knew they had the to go ahead. No, it's never been scrapped the minimum wage and think the caller for pointing that out, right the minimum wage is effects employers who are involved in interstate trade interstate commerce that Federal level and also employers only of a certain size and bigger. There are there are some exemptions from the minimum wage a completely and then there's apparently the second tier second tier for those in smaller businesses. Yes back to the phone's not a callers on the line. Hi. (00:48:43) Yes. I'm calling from Duluth. My concern is if we couple a higher than average minimum wage with mandatory employer health coverage that this is really going to affect Minnesota's ability to compete with other states and I'd like to ask Professor. What do you thinks we should do to compensate for that? It's Advantage, (00:49:00) you know question if if employer employment costs are increased by the minimum wage and buy insurance premiums to pay for the health care package, whatever it turns out to be both add to employment costs all other things equal the higher employment cost per hour the fewer workers per hour. Back to the phones not to callers on the line with a final question for Professor similar hunt. Hello. Yes, go ahead. Hi (00:49:34) there. I just wanted to comment on what I've had a first-hand experience of working a minimum-wage places both as a worker and as a manager managing people who are a minimum wage and I guess it'll have a statistics to back this up, but my first-hand experience is that the people are working minimum wage are working. They're pretty busy and they don't see that they could really cut the time or cut people because they're running on such a tight tight hourly labored as it is and so I don't necessarily agree with the statement that they can actually cut people and I also have a question and that is is there a going to be on this proposed Bill a division between standard hourly rate people and those that are tipped employees. (00:50:23) I don't know sir. I was looking at the at the Kelly bill and my understanding if I had to guess at this point, it would be that there is no there's no differentiation. And they did away with the the so-called tip credit a while ago. My reading of the bill indicates that the probably isn't going to be anything like that. But on the other point that workers this person has known at the minimum wage are working full time and are very busy and so forth in the employer really couldn't get rid of them. Even if a player wanted to if minimum wage went up the point is that if the minimum wage Rises and nothing else happens employment will fall now in the case that you're mentioning. It's pretty clear that something else is going to happen either the either the employer will find some other way to cut costs non labor costs or the employer will find some way to raise prices. Thereby reducing the real or purchasing power of the minimum wage these things happen and the Third Way is the way that we've usually gotten out of this and that is through some general. To the economy as a whole making the demand for labor higher than it was and therefore making people more employable than they would be if just the minimum wage increased and nothing else happened. This is what has happened. In fact periodically, the minimum wage has gone up employment goes down, but then it starts to build up again as the economy keeps growing and there you have it.