The reason lies in the relationship between rising wages and rising productivity. Wages at retailers, restaurants and other service-related businesses rose at a faster clip in Minnesota than they did nationally between 1994 and 1998, according to a Pioneer Press analysis of data from the U.S. Bureau of Labor Statistics. That's likely the result of Minnesota's labor markets being tighter than those of the United States as whole, said Tom Stinson, an economist at the University of Minnesota and the Minnesota Finance Department. One response by employers to a shortage of workers is to raise wages. But when a company raises wages, something else must give.
Firms can react by cutting profits.
Or they can reduce expenses. Or they can raise prices. They can also concentrate more on boosting productivity, something employers are always trying to do, anyway. When productivity rises, workers produce more widgets per hour, meaning they essentially produce more revenue per hour. Some of that revenue is usually plowed back into workers via higher wages, economists say.