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Minimum wage workers in Minnesota will get the biggest pay bump in years in 2025 as a result of Democratic lawmakers eliminating the state’s wage tiers and raising the limit on inflation adjustments.
The state currently has two hourly minimum wages: $10.85 for workers at large businesses (with revenues greater than $500,000) and $8.85 for workers at small businesses, workers younger than 18 and workers on J-1 visas.
Starting Jan. 1, virtually all workers will be entitled to the same hourly minimum wage of $11.13. That’s a 26% increase for workers currently at the lower wage floor.
But the 2.6% increase for workers at large businesses will also be the largest annual adjustment since lawmakers tied the minimum wage to inflation in 2018 but capped increases at 2.5%.
This year, state lawmakers raised the limit on annual inflation adjustments to 5% to ensure the state’s lowest paid workers receive larger raises in periods of high inflation. (As before, tips cannot be counted toward the minimum wage.)
State lawmakers did leave one exception to the higher minimum wage: Employers may still pay workers under 20 years old a training wage for the first 90 days of employment. That wage is currently $8.85 per hour and will increase to $9.08 on Jan. 1.
The higher minimum wage floor will affect a relatively small number of jobs: an estimated 90,000 jobs in the state pay the minimum wage or less, or 2.7% of the state ’s salaried and hourly jobs.
Local minimum wages in Minneapolis and St. Paul of around $15 per hour are also set to increase with inflation on Jan. 1.
Even with the inflation adjustment, the state minimum wage won’t be enough to afford the basic cost of living in Minnesota without relying on public assistance.
A single worker with no kids needs to earn at least $16.68 per hour to afford basic living costs (which includes necessities like food, housing and health care but not eating out, vacations or savings). Two working parents with two kids need to each earn $23.26 per hour, according to estimates by the state Department of Employment and Economic Development .
The federal minimum wage of $7.25 per hour hasn’t been adjusted since 2009, so wage floors vary greatly across the country . The federal minimum wage applies in 20 states including Wisconsin and North Dakota, while 30 states and the District of Columbia have a higher minimum wage. Seven states and the District of Columbia have minimum wages higher than $15 an hour.
Opponents of the minimum wage argue it hurts the job market by reducing the number of people employers can hire. The evidence that raising the minimum wage kills jobs is mixed , however.
In recent years, a shortage of workers has been a bigger challenge in the economy than a shortage of jobs.
From 2019 through 2023, low-wage workers saw their incomes rise at the fastest clip in decades, which has begun to reverse growing income inequality. The lowest-paid workers saw their wages rise 13.2% over those four years compared to 3% for middle-wage earners and 4.4% for the highest-wage earners, according to researchers at the Economic Policy Institute , a left-leaning think tank.
The EPI researchers note the tight labor market wasn’t the only factor at work, and the government’s generous economic relief programs during the COVID-19 pandemic and increases to local minimum wages also played a part.
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