BEMIDJI, Minn. -- Minnesota employers paying the minimum wage will increase salaries per state law next year.

On Jan. 1, 2022, the minimum wage rates for large employers will increase from $10.08 to $10.33. For smaller employers, meanwhile, the increase will be from $8.21 to $8.42. Both rates are increasing by 2.5%.

"They're set to go up each year," said David Berry, research analyst for the Minnesota Department of Labor and Industry. "The state law has a minimum wage for larger and smaller employers, and both are set to increase annually. The increases are based on an implicit price deflator, which is like a consumer price index."

According to Berry, large employers are considered those with an annual gross volume of sales at $500,000 or more per year. When it comes to both large and small employers, the raises to the minimum wage are set to coincide with inflation.

"This increase is designed to help minimum-wage workers keep up with inflation to better provide for themselves and their families," Labor and Industry Commissioner Roslyn Robertson said in a release.

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The minimum wage has increased consistently in the last decade since the Minnesota Legislature passed a new law in 2014.

In 2016, Minnesota's minimum wage was at $9.50 an hour for larger businesses and $7.75 for smaller businesses. In 2019, the minimum wage was increased to $9.86 for larger employers and $8.04 for smaller businesses.

When the new minimum wage is in effect in January, workers at a larger business would earn $21,486 annually if they worked 40 hours a week at $10.33 an hour. For smaller employers, workers would earn an annual salary of $17,514 if they work 40 hours a week at $8.42 an hour.

Either amount will be well ahead of the federal minimum wage, though, which has been at $7.25 since 2009. As an annual salary, $7.25 is estimated at $15,080 for workers putting in 40 hours per week.

The three minimum wage levels produce an estimated annual salary below the annual cost of living. According to a calculator from the Minnesota Department of Employment and Economic Development, the state costs of living are:

  • Statewide, the annual cost of living is $32,964 for a single adult, age 19-50.
  • The annual cost of living for a single adult with one child is $57,420 statewide.
  • The cost of living statewide for a family with two working adults and one child is $67,596.

Wages above the state's

Neither the new state minimum wages or the federal wage will impact Minneapolis and St. Paul, though. The Twin Cities are exempt as both have minimum wages already higher than the others mentioned.

"Different laws have different minimum wages and whichever is the highest is the one that applies," Berry said. "The state one applies in most cases since it's often higher."

The city of St. Paul has set a goal of reaching a $15 minimum wage by 2025. In 2021, businesses with more than 101 employers now pay $12.50 and small businesses with six to 100 employees pay $11 per hour. Only micro-businesses with five or fewer employees pay $10.

Minneapolis, meanwhile, increased its hourly minimum wage this summer. For businesses with 100 or fewer employees, the wage is $12.50 and for employers with 101 and more workers, the amount is $14.25.

Larger companies in recent years have also taken action to raise wages for workers. In October 2018, Amazon announced it was increasing its minimum wage to $15 for all full-time, part-time and temporary employees.

Another announcement in 2018 came from Walmart, which set its starting wage at $11. Then, in September of this year, Walmart pushed the amount up to $12 an hour.

In June 2020, Target announced it would raise its starting wage to $15. McDonald's also announced increases, offering a range of $11-$17 an hour for entry-level workers and $15-$20 for shift managers.

Views on the political spectrum

At the state Capitol, the minimum wage has the backing of the Democratic-Farmer-Labor party, according to DFL Chair Ken Martin.

"We've always supported the minimum wage and a living wage," Martin said. "In 2013 and 2014, we pushed hard to get this minimum wage increased in the state. It couldn't come at a more important time as we see the cost of living increasing."

Martin said with inflation adjustments, a minimum wage worker earned $10.59 in 1968.

"That's 46% more than the $7.25 in the federal minimum wage, which hasn't been raised in more than 10 years, despite inflation taking place," Martin said. "This is a moral issue, people should be paid enough to live and support their families."

State Rep. Matt Bliss, R-Pennington, though, argues the minimum wage is more suited for entry-level workers.

"The minimum wage has never been established to raise a family of four on," Bliss said. "It's something for kids in, or just out of high school, and young adults who are getting into the workforce. It's to help them get hired, get trained and then increase their pay."

On both sides of the aisle, officials said the minimum wage's relationship to inflation is important to keep track of.

"The least we can do is make sure the minimum wage is keeping up with inflation," Martin said. "As prices increase, and we don't increase the minimum wage, they're basically making less and less each year. That's not right."

"I haven't been opposed to tying it to inflation," Bliss said. "But it's not meant to support a family and I don't think it should be meant to do that. I think the minimum wage should be just that. I remember when I first started working it was $1.70 an hour and that was the last time I made the minimum wage. Really, you need to work at getting training, improving your life and not expecting minimum wage jobs to support you."

A need for workers

A bigger issue from Bliss' perspective is the labor shortages existing in Minnesota and beyond.

"We should be focusing more on addressing the shortage we have," Bliss said. "Training people and incentivizing them to get to work. In California, there is a shortage of dockworkers, with hundreds of ships backed up along the coast, and we're seeing shortages in Minnesota on our store shelves right now. So we need to get people back to work."

According to a DEED report published in September on worker shortages, the coronavirus pandemic has contributed to the labor force decline. However, it's one of many causes of a problem preceding COVID-19.

The report shows the last three years have had the highest number of quarterly job vacancies since DEED started measuring the statistic in 2001. Since 2005, the number of job vacancies has doubled in every region of the state, with the largest growth in central, northwest and southeast Minnesota.

Also noticeable is the decrease in new workers in the state. In the 1990s, there was an average of 41,000 new workers per year in Minnesota. In the last decade, the average was 15,000 and in 2020, there were 7,500 new workers.

The report goes on to state how the vacancies are continuing, despite the unemployment rate stabilizing. In 2020, there was a surge in the unemployment rate. However, by July 2021, four of the five regions in Greater Minnesota recorded lower unemployment rates than in July 2019.

While job vacancies are back to pre-pandemic levels, though, DEED researchers have found the labor force has not fully recovered. DEED analysts also found that when the labor force does recover from the pandemic, the scarcity of available job seekers will continue being an issue.

One of the issues causing the shortage, according to DEED, is Minnesota's economic growth coinciding with an aging workforce heading toward retirement and fewer young people to replace them.

According to a survey conducted by the organization Hospitality Minnesota, the service industry has especially been hit by the labor shortage. Industry-wide, the labor availability has not improved since the start of summer.

In May, 81% of hospitality business operators described their labor availability as "tight." The respondents in specific industries had even higher, at 96% of hotels and 91% of food service respondents calling the labor availability tight.

The survey also found hospitality businesses having 40,000 fewer employees than pre-pandemic levels. In February 2020, there were 276,000 workers, and today the amount is 237,000, a 14% reduction.