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Legislative Memo

518.465.7511

BILL:

S.7682/A.11760

Support

SUBJECT:

Minimum Wage

 

DATE:

November 17, 2004

 

This bill would increase the state minimum wage to $6.00/hr. on January 1, 2005, $6.75/hr. on January 1, 2006 and $7.15/hr. on January 1, 2007. Governor Pataki vetoed this bill on July 29, 2004.

The Business Council opposes its enactment and supports the recent veto.

Last week, employers in New York State learned that they will be paying an additional federal unemployment insurance tax of $21 per employee in January 2005 to replenish a fund drained by job losses during and after the last national recession.

Now, employers who pay at or near the current minimum wage will face the following additional costs if this minimum wage bill becomes law.

Significant increase in payroll, benefit and insurance costs

For employers who currently pay a wage between the current minimum wage of $5.15/hr. and the proposed levels of $6.00, $6.75 and $7.15/hr., this bill involves a direct increase in wage costs of 16.5% on January 1, 2005, 12.5% on January 1, 2006 and 6% on January 1, 2007 without any increases in productivity to offset them. The total wage increase required by this bill is 38.8% over the current $5.15/hr. minimum wage.

In addition, Social Security taxes will rise a corresponding 16.5%, 12.5% and 6% as will Medicare taxes because both are directly applied to the wages of the employee.

Likewise, Workers' Compensation premiums will directly reflect the wage increases required by this bill. For example, a "clerk" classification carries a premium of $2.42 per $100 of payroll per year. At the current minimum wage of $5.15/hr., the annual workers' compensation premium is $258.94 while at a minimum wage of $7.15/hr., the annual premium would rise to $359.90.

Unemployment Insurance taxes are paid by employers on the first $8500 of earnings. For employers with significant numbers of minimum wage part time workers who only earn a few thousand dollars per year, the UI tax increases required by this bill will mirror the bill's increases of 38.8% over the two year period.

Reduction in entry level training opportunities

A predictable response to increased costs generated by mandated minimum wage increases is to

reduce the number of current and future minimum wage jobs that the business supports. This, in turn, reduces the current and future number of entry level and training opportunities for those with the least skill and experience, whom the proponents of a higher minimum wage purport to help.

In a July 2004 Employment Policies Institute study by Cornell's Dr. Richard V. Burkhauser and Dr. Joseph J. Sabia called Raising New York's Minimum Wage: A Poor Way to Help the Working Poor, they cite job losses as a result of a hike in the minimum wage. "A 10 percent increase in the minimum wage causes an 8.5 percent decline in the employment of African Americans (aged 16-24), a 5.7 percent reduction in teenage (aged 16-19) employment, and an 8.5 percent decline in non-high school graduate employment (aged 20-24)."

Increases in Washington state's minimum wage began in 1999 and have now brought it to more than 36 percent higher than the national average. In a report by Richard Vetter and Lowell Gallaway from Ohio University, the authors studied whether the goal of improving economic conditions for lower income citizens was met. Their study indicates that after implementation of the mandated minimum wage hikes, the state poverty and unemployment rates rose and job losses occurred. They estimated that after correcting for job loses resulting from the business cycle downturn, from 24,000 to 48,000 job losses can be attributed to the minimum wage increases. Job losses were found in every sector of the Washington economy but occupations relying heavily on less skilled employees, restaurants and agriculture, were particularly impacted.

The bottom line

Businesses in New York State cannot create new jobs and maintain existing jobs, particularly entry level and lesser skilled positions, if the cost of creating and maintaining them continues to rise due to state and federal mandates.

The Business Council remains ready to discuss with minimum wage advocates other means to achieve their goals of reducing poverty and increasing pay for those at or near the current minimum wage.

For these reasons, The Business Council opposes this legislation and respectfully urges the Senate to resist pressure to override the Governor's veto.