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For Release — June 22, 2015

Testimony to the NYS Department of Labor Fast Food Wage Board

ALBANY, N.Y.—The Business Council is submitting these comments for consideration by the members of the “fast food wage board,” and will be submitting detailed written comments prior to the June 26 deadline.

 
The Business Council is New York’s largest statewide employer association.  We represent about 2,400 private sector employers, employing an estimated one million New Yorkers, as well as a number of local chambers of commerce, and other business interests across the state.

 
Even this wage board is only addressing “fast food” employers and certain fast food occupations, it is being watch carefully and with great concern by employers in many sectors.

 
In summary, The Business Council does not support using an administrative wage board to impose a minimum wage increase.  Our concerns include the following.


This is precedent-setting.  This current wage initiative would be the first time since the 1962 restructuring of the state’s minimum wage law that an administrative wage order is being used to set mandated wages above the state’s statutory level.

 
Despite its narrow focus, most expect this wage board’s work to serve as the template for future wage board action.  Under state labor law, this unilateral authority can be applied to any industry or any occupation.  While relatively few New York employers pay the minimum wage, a significant increase in the minimum hourly pay rate, to $15 per hour, would have wide spread impacts for many private and public employers.

 
We strongly believe that the legislature is the proper venue for this type of policy-making, and in fact the New York State legislature has adopted 22 minimum wage increases since 1962.  A three step increase was adopted in 2013, and will not be fully phased in until the end of 2015.   Importantly, the state legislature can make other law changes – as it did in 2013 – intended to mitigate any adverse impact of a mandatory wage hike on employers; measures that are beyond the authority of a wage board and the commissioner of labor.

 
- Defining the Industry:  This board’s recommendations will almost certainly be arbitrary in scope and cause equity problems in its implementation.  The Labor Commissioner’s “Opening Statement and Charge” directed it to consider wages paid by “fast food chains,” described in that document as “limited service restaurants, where customers order at the counter and pay in advance, which are large chains with multiple locations nationally…”  In doing its work, the wage board and the Labor Commissioner will have to make a significant number of distinctions among the many business models in use.  What is the distinction between a “large chain” and a non-large chain?  Does the reference to multiple locations “nationally” exempt regional chains (and what criteria will be used to make this distinction)?  In settings where more than one business service is provided at the same site – gas station/convenience store/food service is an increasingly common grouping – would this wage order cover some but not all workers at such location?  At food service establishments providing both take out and “sit down” options, how would this wage order apply to workers serving both types of customers?

  
Regardless of how the wage order addresses these and other combinations of business services, it will result in arbitrary and disparate treatment of some businesses (and their employees.)  The Commissioner’s order states that, “by setting common rules for all businesses in the affected industries, [wage orders] also help to prevent unfair competition…”  However, this objective is certainly contravened by the narrow scope of the wage board’s charge.


- Wage Increases and Economic Impact:  When the third step of our 2013 minimum wage legislation takes effect on December 31, 2015, New York’s minimum wage will be $9 per hour for all industries.  At that time, New York’s minimum wage will be 24 percent above the federal minimum wage, and will be exceeded by that of just seven other states.

 
It is crucial for the wage board to consider the aggregate cost and affordability, as well as impact on job opportunities, of any proposed minimum wage.


For example, the “all sector” minimum wage increases proposed in the Executive Budget, of $11.50 in New York City an Nassau and Westchester counties, and $10.50 in the remainder of the state, was projected as increasing labor costs for business by $3.4 billion.  During the FY 2016 budget cycle, the state Assembly proposed even higher wage levels, $15 in New York City and $12.60 in the remainder of the state (effective 12/31/18).  The aggregate costs of these proposals would be far higher.


As shown in the following chart, these proposed wage levels would impose significant additional costs on individual employers, ranging from $3,488 to $13,950 on a full-time equivalent basis, when payroll costs are considered in conjunction with mandatory resultant increases in social security and Medicare taxes and workers’ compensation costs.  Compared to the federal minimum wage, which remains the wage standard in twenty-one states, these increased costs are even more significant.

 

Target Wage

$10.50

$11.50

$12.60

$15.00

Total Annual Payroll Increase (compared to $9/hour)

$3,488

$5,813

$8,371

$13,950

Total Annual Payroll Increase (compared to federal minimum wage)

$7,556

$9,881

$12,439

$18,018

 

At a time when many areas of New York State continue struggle to recover jobs lost in the 2009 recession – as of the 4th quarter of 2014, twenty-six upstate counties have yet to fully recover private sector jobs lost in the 2009 recession (see first attached chart) -- the last thing the state’s economy needs is a significant increase in mandatory labor costs. But that is what a minimum wage hike is – an employer cost mandate, that will result in increased prices, reduced profitability, or reduced spending on labor or other business needs.


For an employer, especially a small business employer (which is the case for many franchised fast food restaurants, i.e., for the nation’s largest fast food company, more than 80 percent of its restaurants are owned and operated by our franchisees) these costs add up fast, especially with the economy producing little in the way of new sales, and especially in sectors such as the fast food sector where profit margins are thin, with 3 to 5 percent being the frequent estimates. To accommodate these increased costs, business have limited choices: increased prices, divert resources from other purposes, attempt to become even more “efficient,” or purchase less labor, meaning either a reduction in hours or elimination of jobs for some workers. A recent report by the Employment Policies Institute, based on a survey of more than 900 fast food restaurant owners/operators in New York State, showed that just 9 percent were unlikely to reduce hours or positions in response to a $15 per hour minimum wage.


- Other Jurisdictions: A number of witnesses have cited recent minimum wage increases by west coast cities, and have suggested that these increases have had little or no adverse impacts.  The fact of the matter is that it is far too soon to judge.  None of the three most commonly cited cities – Seattle, San Francisco or Los Angeles – are applying a $15 per hour wage.  Their minimum wages today are $11, $12.25 and $9, respectively.  (See second attached chart).  Anecdotal evidence suggests that some employers in the first two cities, where wage hikes have already take effect, are having difficulties coping with these new costs.


There have been numerous governmental, academic and private-sector studies of the impact of minimum wage increases.  The majority of these studies that we have reviewed consider relatively modest wage hikes of ten percent or less.  I am aware of no substantial study of the impact of a 67 percent wage increase, such as that is being proposed by many in New York – going from $9 to $15 per hour.


- Effect of Minimum Wage Increases:  We agree that New York needs to adopt policies to expand economic opportunity in many regions of New York State.  However, for several reasons, imposing new wage mandates will do little to increase economic opportunity or reduce poverty.


A large percentage of minimum wage workers in the U.S. are not members of low-income households.  In February 2014, the Congressional Budget office issued a report showing that less than 20 percent of the benefits of a federal minimum wage increase goes to households with income below the federal poverty threshold, while 30 percent goes to households with income three times the poverty level and higher, with the largest share going to middle and upper middle class families.


The data provided to wage board members by the Department of Labor likewise illustrates that many fast food workers in New York are young, and unlikely to be heads of households.  Just over 40 percent of all workers in this sector are under the age of 24, more than three times the concentration of young workers than found in all occupations in New York State.

In closing, The Business Council believes that the state’s long-term future requires improvements in the state’s overall economic competitiveness.  Imposing significant new costs on employers, including new or increased wage mandates, is contrary to achieving that objective.