Cuomo NYSDOL to Struggling Small Biz: Your Employees Will Soon Cost More

Despite the crushing impact of pandemic restrictions on small businesses throughout New York, the state Labor Department announced late today that it will move forward with a big minimum wage increase scheduled for the end of the month.

On Dec. 31, the hourly minimum is scheduled by law to rise from $13 to $14 (an increase of 7.7 percent) on Long Island and in Westchester County, and from $11.80 to $12.50 (an increase of 5.9 percent) in the rest of the state. Only six states currently have higher statewide minimums than $11.80, and only two (California and Washington) exceed $13 statewide.

The federal minimum wage is $7.25, and the minimum has already been raised to $15 in New York City, effective a year ago for smaller employers and at the end of 2018 for large employers.

The wage increases upstate and on Long Island are another kick in the teeth to small service-sector employers—restaurants, personal-care businesses, retail outlets—that have been especially hard hit by the restrictions imposed under Governor Cuomo’s New York State on PAUSE orders. Even supporters (in normal times) of minimum wage hikes acknowledge they have a ripple effect up the wage scale, so their impact (and cost) isn’t limited to the lowest-page employees.

Today’s Labor Department press release features a subhead noting “Minimum Wage Workers [Are] Disproportionately Impacted by the COVID-19 Economic Downturn”—but it’s hard to see how making marginal workers more expensive will boost hiring at a time when demand is still lagging. If anything, it will have the opposite effect.

Under the 2016 law aiming ultimately for a $15 statewide minimum, Cuomo’s Division of the Budget (DOB) had the power starting in 2019 to recommend a “temporary suspension or delay” in any scheduled wage hikes, based on its “analysis of the state of the economy in each region, and the effect of the minimum wage increases” already imposed by the law. As noted in this space, last year’s DOB analysis was “remarkably flimsy, misleading and superficial,” ignoring a drop in the labor force that contributed to labor shortages in some sectors. The analysis also ignored establishment payroll data reflecting a slowdown in job growth across much of the state last year.

This year’s even later DOB report is, if anything, even flimsier—a case-study in how a willing bureaucracy will spin numbers to reach a foregone conclusion.

The report acknowledges the obvious: hikes “would be distinguished from the previous increases in that they will be occurring during a fragile recovery from the COVID-19 pandemic” and that “COVID-19 has dramatically changed the economic landscape, casting doubt on whether the capacity to absorb minimum wage increases without adverse impact can continue over the near-term.” Yet having acknowledged the doubt, the DOB report casually waves it away:

However, close examination of the available economic data by region suggests that the labor market recoveries in Long Island, Westchester, and the remainder of the Upstate are proceeding apace and are not likely to be substantially harmed by the minimum wage increases scheduled for the end of this year.

In other words, anonymous DOB analysts have looked at the numbers and concluded, as a matter of their opinions, that a 5.9 percent to 7.7 percent increase in labor costs won’t “substantially” hurt hiring. Because, you know, why should a struggling low-margin business with limited pricing power in a recession find it difficult to absorb an increase in labor costs?

The closing portion of the analysis is especially risible. It notes that a separate section of law already requires wages for employees of fast-food chain outlets to rise to $14.50 on December 31, 2020 and $15.00 on July 1, 2021 for all areas of the State outside of New York City, adding: “Thus even the increase to $12.50 leaves the upstate minimum wage fully $2.00 below the fast-food industry minimum wage.” As if raising the minimum wage for big chains that can afford to pay their workers more will make things any easier for their smaller, independently owned local competitors.

The Labor Department delayed the issuance of the DOB report and its press release confirming the minimum wage hike to as late as possible in the year, and issued the release at the very end of the day.

It seems clear that the Cuomo administration knows that hiking minimum wages is a bad idea, imposing a counter-productive burden on the shakiest parts of a still-shaky economy, especially on the heels of Cuomo’s warnings this week that he might reimpose lockdowns if the COVID-19 case count keeps mounting.