Like Everything Else, The Minimum Wage Debate Is Complicated

Like Everything Else, The Minimum Wage Debate Is Complicated

How will proposals to raise Minnesota’s minimum wage affect the nonprofit sector?

The minimum wage issue does not appear to be going away, at least in Minnesota. Last session, the House passed a DFL-backed bill to increase it to $9.50 an hour, and legislators are expected to take up the issue again early this year. (Republican members proposed a $7.75 minimum last year; the current rate in Minnesota is $7.25 per hour.)

And this fall, Minnesota’s Jobs Now Coalition released A Raise for Minnesota, which looks at workers who make less than $9.50 per hour and how raising the minimum wage to that amount would improve their lives. Their data show that more than 357,000 Minnesotans work at jobs paying less than $9.50 an hour—$19,760 a year—for a full-time worker. (The coalition is a statewide research and advocacy organization that promotes jobs paying a “family-supporting wage,” wage levels calculated as necessary to pay family expenses such as day care, transportation, rent, and food.)

The report cites, among other sources, research published in February 2013 from the Washington, D.C.-based Center for Economic and Policy Research, Why Does the Minimum Wage Have No Discernible Effect on Employment? The Jobs Now report shows that business sectors most affected by a minimum wage increase are leisure and hospitality, retail, education and health care.

Since nonprofits aren’t one of the top sectors listed above, and with so much of the sector’s focus on alleviating poverty and its impact on health, education and well-being, it would seem natural that nonprofits as a group would advocate for a higher minimum wage. But the subject turns out to be complicated on a number of fronts. Here are two:

Nonprofits are themselves employers, and their workers include significant cohorts of people earning less than $9.50 per hour. According to the Minnesota Council of Nonprofits 2013 Nonprofit Economy Update and data from its members’ salary survey, employment categories that are most likely to be paid at less than $9.50 per hour include program assistant, janitor/custodian, cook and receptionist. (In these job categories, only a portion of employees earn less than $9.50 per hour.)

Further, a recent Council of Nonprofits survey asked its members about the impact of a minimum wage increase on their organizations. Susie Brown, public policy director, shared preliminary responses that revealed three areas of greatest concern to members: services to people with disabilities, child care services, and jobs and job training for people with disabilities, which all depend in part on lower-wage workers. Within these important community services, at least some wages are based on the reimbursement rates allowable in government contracts-for-service, so a mandated increase in the minimum wage without a corresponding increase in the funded reimbursement rate will lead to potential service gaps, as nonprofits seek to cover the difference in an already tight economy, or face reducing workers’ hours.

Evidence is inconclusive about the benefits of a minimum wage increase on society’s most vulnerable workers. Paul Mattessich, executive director of Wilder Research, says that a thorough research review shows an increase in the minimum wage would have a mix of positive, neutral and negative consequences. Mattessich cites the book Minimum Wages by David Neumark and William Wascher, which explores whether increasing the minimum wage reduces poverty and whether it is the most efficient way of doing so. Their research concludes that “movement onto poverty rolls by families of workers whose employment is negatively affected by minimum wage increases more than offsets the movement out of poverty by the families of workers whose wage earnings are positively affected by an increase in the minimum wage”—in other words, when the minimum wage goes up, more people fall into poverty than not. The authors show that other measures, like the Earned Income Tax Credit (EITC), help alleviate poverty more efficiently. That’s because the EITC specifically targets working families and individuals whose total earned income is low, without raising the minimum wage for all individuals.

In Unequal Harm: Racial Disparities in the Employment Consequences of Minimum Wage Increases, labor economists William Even and David Macpherson detail the effect of minimum wage hikes on 16- to 24-year-old male high school dropouts and show that each increase of 10 percent in a state or federal minimum wage has cut employment among white males by 2.5 percent, for Hispanic males by 1.2 percent and for African American males by 6.5 percent. Minimum wage increases also correlated with a reduction in hours worked.

Nonprofit organizations are already preparing to find creative ways to deal with operational challenges from raising their workers’ wages to a new minimum. They’ll also be making sure that policymakers understand the impact of a wage increase on grant levels and contracts-for-service, and they’re advocating for higher funding levels so that service levels can be maintained.

Among the strongest arguments for raising the minimum wage is the effect of inflation: By some counts the minimum wage has lost more than 40 percent of its value since 1968. Calculations vary significantly among economists, but no one disputes that $1.68 per hour in 1968 bought far more than $7.25 per hour does today. “The vast majority of MCN members believe the [nonprofit] sector needs to support a higher minimum wage and that we will find ways of dealing with the challenges” it presents, says Brown of the Council on Nonprofits.

But don’t expect some Minnesotans’ new earning power to be the solution to persistent poverty. Even proponents agree that while raising the minimum wage is important, it is only one piece of improving the economic conditions of the poor. To improve the lives of the most vulnerable, we’ll need sustained focus on root causes and a collaborative approach to multi-faceted solutions.

Sarah Lutman is a St. Paul-based independent consultant and writer for clients in the cultural, media, and philanthropic sectors.

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