Legislative Memo

Frank Kerbein
T 518.465.7517 x210


A.5132 (Nolan)



Increase State Minimum Wage



March 13, 2001


The Business Council of New York State, whose membership includes over 4,000 member firms as well as hundreds of chambers of commerce and professional trade associations, has reviewed the above mentioned legislation and opposes its enactment.

This bill would increase the state minimum wage to $6.75 per hour on January 1, 2002 and, thereafter, automatically increase it annually in a percentage amount equal to the annual increase in the regional consumer price index for the New York-Northeastern New Jersey area, based on the CPI-U, published by the U.S. Bureau of Labor Statistics.

The Business Council opposes this bill for the following reasons:

  1. Most minimum wage workers move beyond the minimum wage within the first year.

  2. A 31% increase will result in serious multi-level wage expansion for employers well beyond those earning at the minimum wage level with no corresponding increase in productivity or business income.

  3. The Earned Income Tax Credit is a better means of assisting low and moderate income employees who are head of households.

  4. Despite our current vibrant economy, high minimum wage-low skill jobs will be eliminated and future low skill entry level jobs will never be created, further removing opportunities for unskilled teens and low skilled entry level employees to get their first chances at meaningful employment.

  5. If New York State forces employers to pick up an additional $3,000 per employee in wage costs, many employers will be forced to reduce optional benefits such as health insurance. Such a tradeoff will leave an employee worse off since these benefits are not taxable.

We do not believe that minimum wage workers are "stuck" at the minimum wage and that the only way for them to get a "raise" is through legislative action.

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. Most are part time workers not seeking full time employment.

According to the Employment Policies Institute (www.epionline.org), nearly two-thirds (62.5%) of minimum wage workers move above the minimum wage within one year of working at the starting wage. The typical wage increase after one year was 8.06% for employees with less than a high school education, 11.76% for high school grads and 14.47% for those with some college. They also point out that the median annual wage growth for minimum wage workers is 3 to 4 times higher (10.1%) than the average wage growth for all employees.

Most minimum wage workers are mobile and leave the minimum wage behind them quickly, having benefitted from the experience gained from the work provided at the minimum wage.

Raising the minimum wage from $5.15.to $6.75 or $1.60 per hour, equates to a 31% wage increase. 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 firms 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.

The Earned Income Tax Credit is a tax benefit that is appropriate for helping those families who earn low or moderate incomes.

When utilized by single qualified employees in 1999, the EITC was worth $.20 per hour. For qualified employees with one child, the EITC equaled $1.33 per hour while those with 2 or more children could receive an EITC worth $2.30 per hour. Adding these to the current minimum wage rate results in a much more positive earning picture for the individual employee and does not artificially distort an employer's wage scale and cause "wage compression."

As the government artificially sets a higher minimum wage, employers have a greater incentive to turn to substitutes or economize on their use of more expensive services already in the workplace. The substitutes referred to here are new work methods, systems or machines to replace the now more expensive low skilled workers. The existing more expensive services already in the workplace refers to current higher skilled and higher paid staff whose jobs would be modified to accommodate the work which would otherwise have been done by low skilled minimum wage workers.

For these reasons, The Business Council strongly opposes this legislation and respectfully urges that it not be enacted by the Assembly.