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At a time when some areas of New York still recovering from job losses in the 2009 recession, 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, and/or reduced spending on labor or other business needs.
The Executive Budget’s proposal to further raise the state minimum wage to $15 per hour by December 31, 2018 in New York City and by July 1, 2021 in the rest of the state may be well-intentioned, but it will have a significant adverse impact on employers and jobs. The Business Council opposes this proposal.
When fully implemented, a $15 minimum wage would impose $15.7 billion in increased payroll costs on private sector employers (the state’s current minimum wage law exempts federal, state and municipal employees), a cost increase that would be impossible to offset through tax credits, tax cuts or other reforms.
This proposal will hit employers hard. As shown in the chart below, $15 per hour would result in a $14,000 per year increase in labor costs for a full time position, counting direct payroll costs and related increases in federal social security and Medicare taxes, and increased workers’ compensation costs. This is a 70 percent increase in hourly labor costs, compared to the state’s current minimum wage. This is in addition to the 25 percent, $3,500 per FTE increase imposed under the state’s 2013, three-step minimum wage increase.
| Hourly Wages | $7.25 | $8.75 | $9.00 | $15.00 |
|---|---|---|---|---|
| Direct Payroll Cost | $14,500.00 | $17,500.00 | $18,000.00 | $30,000.00 |
| Social security (6.2%) | $899.00 | $1,085.00 | $1,116.00 | $1,860.00 |
| Medicare (1.45%) | $210.25 | $253.75 | $261.00 | $435.00 |
| Workers' Comp | $598.85 | $722.75 | $743.40 | $1,239.00 |
| TOTAL (2000 HRS/YR) | $16,208.10 | $19,561.50 | $20,120.40 | $33,534.00 |
| INCREASE FROM $8.75 | $558.90 | $13,972.50 | ||
| INCREASE FROM $7.25 | $3,353.40 | $3,912.30 | $17,325.90 |
A $15 minimum wage would also vault New York State past the handful of states (see chart below) with a minimum wage above $9 per hour (the level that will go into effect in New York on 12/31/15.) No state currently applies a minimum wage greater than $10 per hour, and no state has adopted legislation taking their minimum wage anywhere close to $15 per hour.
| STATE | MINIMUM WAGE ON 1/1/16 | FUTURE INCREASES |
|---|---|---|
| California | $10.00 | |
| Massachusetts | $10.00 | Increases to $11.00 on 1/1/17 |
| Alaska | $9.75 | Indexed to inflation |
| Vermont | $9.60 | |
| Minnesota | $9.50 for employers with sales over $500,000 $7.75 for smaller employees |
|
| Washington | $9.47 | Indexed to inflation |
| Oregon | $9.25 | Indexed to inflation to nearest $.05 |
| Connecticut | $9.15 | Increases to $10.10 on 1/1/17 |
A $15 per hour minimum wage would have broad impact on employers and jobs. Based on current federal data, 153 out of 785 occupation categories, representing more than 3 million jobs in New York State, have median wages under $15, meaning that this proposal would directly impact almost 20 percent of all private sector jobs in New York State. New York has another 1.6 million jobs in occupations with median wages between $15 and $20, which will see wage pressures from a $15 minimum wage.
While employers in all business sectors will be impacted, the greatest cost of a $15 minimum wage will be felt in sectors dominated by small business, including retail, hospitality and home health services. This proposal will impact other sectors as well, including farms and related businesses, and a broad range of non-profit organizations.
For a small business with a handful of employees, these increased labor costs add up fast, especially with the economy producing little in the way of new sales. To accommodate these increased costs, business have limited choices: increased prices, divert resources from other purposes, attempt to become even more “efficient,” or reduce labor costs by other means such as a reduction in hours or elimination of jobs for some workers.
As for low-wage employees, a recent study by Cornell and American University shows this bill would hurt the very people who the proposal is intended to protect. It found that after the state’s 2005 minimum wage hike (from $5.15 to $6.75), in-state employment of low-skilled workers between 16 and 29 years of age fell by 12.2 percent. A recent report by the U.S. Chamber of Commerce also indicates a negative relationship between minimum wages and employment, showing secondary impacts, such as a reduction in the amount of training provided to low-income employees, which would result from increasing the minimum pay rate.
The Business Council believes that the state’s long-term future requires improvements in the state’s overall economic competitiveness. Imposing increased costs on employers, including an increased minimum wage, is contrary to that objective.
For these reasons, The Business Council strongly opposes a $15 per hour minimum wage