Legislative Memo

Frank Kerbein
T 518.465.7517 x210


A.5132 (Nolan)



Increase State Minimum Wage



March 13, 2001


The Small and Independent Business Council of The Business Council of New York State, Inc. whom represents thousands of small businesses in New York State has reviewed the above mentioned legislation and opposes its enactment into law. This legislation would raise the minimum wage by 31% from $5.15 per hour to $6.75 per hour effective January 1, 2002.

Currently, the Department of Labor estimates there are approximately 200,000 minimum wage earners in New York State. This is less than four percent of New York State's total workforce of almost eight million people. Of these earners, only seven percent (or 21,000) are heads of households, and these workers do not rely on minimum wage alone. Many obtain additional income from other family members or through subsidies. In fact, eighty percent of these minimum wage earners are from non-poor households. Most are part time workers not seeking full time employment.

While The Business Council supports programs to help the working poor, a sharp rise in the minimum wage in fact is counter-productive to both economic activity and to the minimum wage earner him/herself. This will not only affect employees at the current minimum wage but also employees earning a wage below the new targeted minimum, a much larger group that is not normally thought of when considering a higher minimum wage. Employers paying not only the minimum wage but also any wage below $6.75 will incur additional wage and social security expenses without any corresponding increase in skill or productivity or income to the business to offset the additional cost.

Additionally, since most small businesses generally work with annual wage increases of 5% or less to pace the cost of living, a government mandated 31% wage increase for those at the current minimum, and other substantial increases for those employees earning any wage below the new targeted minimum, would have a major effect on the wages of many more employees. This "wage compression" goes far beyond the original group and artificially forces higher wage costs for higher paid groups.

Current minimum wage earners will be adversely affected by a minimum wage increase. Studies have shown that businesses will reduce their payroll to comply with mandated salary increases. Minimum wage earners will be the first employees eliminated primarily because of lack of work experience and education. Many of these employees are students gaining valuable knowledge through work experience. Progress in disposable income through this experience is evident. Twenty five percent of current minimum wage earners receive pay increases within six months to a year. Seventy five percent graduate to even better jobs after three years. They are gaining valuable on the job training, at employer expense, during this time. They have thus become an asset to the company and the overall economy by using the minimum wage as an entry to the workforce.

When small business is mandated to increase its payroll, simple business decisions must be made. Either benefits are reduced, hours are reduced, employees are eliminated and/or costs to consumers increase. This creates inflation and adds to the costs of social programs related to unemployment. Complementary programs (approximately 70 federal and state) exist to help the working poor, including the Earned Income Tax Credit, which was increased again this year in New York State to help families who earn as much as 200% above the poverty line, HEAP programs and food stamps. Many of the minimum wage earners which utilize these programs essentially earn/receive tax free rates of over $7.00 per hour. If helping the working poor is the intent, complementary programs should be enhanced as opposed to an across-the-board minimum wage increase.

What these figures show us is that the minimum wage is not the real issue anymore. The hourly wage rate of the working poor has been supplemented by the State and the Federal Earned Income Tax Credits, and without creating any disincentive for small businesses to hire low skilled workers.

New York State addressed this issue when it raised the minimum wage to $5.15 per hour and permanently tied it to the federal rate. To supersede the federal wage rate would put small businesses in New York State at a competitive disadvantage.

For the aforementioned reasons The Small and Independent Business Council strongly opposes A.5132, but encourages the legislature to pursue more productive ways to assist low income, head of household wage earners.