For Release — April 18, 2012
Minimum Wage Hike Would Cost Jobs, Set Back Fragile Economy
Albany N.Y. — Increasing the state’s minimum wage is the wrong approach for promoting the economic well-being of New Yorkers. The costs — recently estimated at up to $1 billion per year — will fall most heavily on small businesses. At a time when most business income is flat, state-imposed costs, such as a higher minimum wage, will result in increased prices, less investment and fewer job opportunities for New Yorkers.
On a full-time basis, raising the minimum wage to $8.50 an hour will cost more than $2,900 per employee, when all costs — direct wages, social security, workers’ comp and others — are factored in. Downstate, these cost increases will dwarf last December’s much praised reduction in small business MTA payroll taxes.
For a small business with a handful of employees, these costs will add up fast, and would come at a time when the economy is producing little in the way of new business income.
Importantly, the impact of a minimum wage increase goes way beyond those employers and workers directly affected. “Wage compression” caused by a minimum wage increase will force up wages — and employer costs — in higher tiered employment as well, driving up its price tag.
The current Assembly proposal is especially troubling as its wage mandate would also be indexed to increases in the consumer price index, resulting in automatic future cost increases to employers.
A minimum wage increase is likely to adversely impact the very workers it is intended to help. In addition to forcing up food and other retail costs (which consume a higher percentage of low-earners’ paychecks), it will also impact low-wage, low-skilled jobs. A 2008 Cornell/American University study showed that raising the minimum wage from $5.15 to $6.75 (which occurred in 2005 and 2006) reduced employment of less skilled 16- to 29-year-olds by 12.2 percent. It also projected that raising the minimum wage from $7.15 to $8.25 would result in a loss of 28,990 jobs, including those of more than 7,000 low-income workers.
Even with these impacts, increased wages will not predominately go to low-wage families. National data shows that most minimum wage earners are single, young and part-time workers.
There are other ways to target wage benefits to low-income families.
With the combined federal and state earned income tax credit (EITC), the “effective” minimum wage in New York is already more than $9 per hour, and somewhat higher in New York City, which has its own city-level EITC as well. As the EITC benefits low-income families — not minimum wage workers in higher-income families — it is a more efficient tool to provide wage support. In 2009, the EITC returned nearly $1 billion to low-income families in New York. The state should consider enhancing the EITC by increasing the rate and/or folding the current state “household credit” into the EITC, providing both an enhanced benefit and simplified application and administration process.
Of course, EITC increases will require a review of how state resources are deployed. Doing so will require hard choices at the state level. However, it will avoid direct adverse impacts on the state’s small business community.
The state also needs to revisit the impact its own policy decisions have on low-income families. For example, a recent report by the Senate Democratic Conference raised concern about the cost of living in New York, including our “sky high” electricity prices. But it ignored the fact that state-imposed taxes and fees — such as the $700 million increase in Section 18-A assessments adopted in 2010 — consume nearly 25 percent of every dollar that low-income families spend on electric power.
Renewed economic growth, rather than income redistribution through taxes and wage mandates, is the only long term solution to improving the economic status of all New Yorkers.
Right now, New York’s economy remains uncompetitive. Between 2000 and 2010, New York suffered a massive loss of middle class jobs, and the economic benefits and state and local tax revenues that go with them.
Going forward, New York needs to make the state more attractive for private-sector investment in job- and wealth-producing sectors. The state needs to lower, rather than increase, state-imposed costs, and adopt broad regulatory reforms that lower barriers to new investment and new jobs. Renewed economic growth will benefit workers and families, and produce the tax revenues needed to finance necessary public services.
Enacting legislation to raise the minimum wage, however, would serve as yet another tax on small businesses, farms and not-for-profits who are already struggling to stay afloat and keep New Yorkers working.