DOB issues subminimal wage analysis

by E.J. McMahon |  | NY Torch

The Cuomo administration has issued a remarkably flimsy, misleading and superficial analysis of the minimum wage increases enacted by New York State since 2013.

Today’s report from the governor’s Division of the Budget (DOB) asserts that higher minimum wages over the past six years “have largely been absorbed without significantly adverse consequences for labor demand,” and concludes that there is “no definitive evidence to-date that the positive impact the State’s rising minimum wage has had on the incomes of low-wage workers has been associated with any significant loss of jobs.”

DOB bases these findings mainly on trends in a single statistical variable: the unemployment rate, which is derived from a sampling of households contacted by a Labor Department telephone survey.

Unemployment happens to be Governor Cuomo’s favorite economic talking point—which is unsurprising, given that the rate has now dropped to near-historic lows across the state. This, the report says, indicates “the labor market is tight.” But, like the governor, the unsigned DOB report doesn’t note a sharp divergence in the underlying trend upstate versus downstate. In the New York City region, including Long Island and the lower Hudson Valley, more people are working and the labor force has grown. But in the 50-county upstate region, the unemployment rate is lower primarily because the labor force has gotten smaller.

As shown below, the labor force has decreased in every region except Long Island and Orange-Rockland-Westchester, and the number of residents employed has decreased in eight of 11 upstate regions.

In other words, upstate, the jobless rate is lower because there are fewer people looking for work. The law of supply and demand would predict that a smaller pool of available workers will lead employers to raise wages without any external government mandate. Indeed, the report acknowledges as much. It cites a Federal Reserve survey of New York manufacturers complaining about a lack of skilled workers, and adds:

“Consequently, it is likely that at least some portion of the increase in wages resulting from statutory minimum wage hikes would have occurred in any case due to increased competition for workers.” [emphasis added]

In fact, as shown in the table above, resident employment in most upstate regions has decreased since 2013, and the percentage drop in employment has been largest in those areas (particularly Elmira and Binghamton in the Southern Tier) that had the lowest median wages in 2013—and thus were most vulnerable to negative effects from a law raising the minimum wage from $7.25 to its current level of $11.80.

To repeat:

In the upstate regions where median wages were lowest to start with, the unemployment data show that fewer people are working in 2019 than in 2013.

To be sure, this does not prove anything one way or another about the impact of the minimum wage increase. A more thorough and persuasive analysis would need to consider more data, including the count of payroll jobs from the Labor Department’s Quarterly Census of Employment and Wages (QCEW) and Occupational Employment Statistics, in both cases broken down by metro areas and industry.

DOB can command more access to more data—including unpublished data collected directly from employers and workers—than any organization in New York. Following the example of the ongoing University of Washington research into the effects of Seattle’s $15 minimum wage, DOB could have directed the Labor Department to conduct additional surveys and produce records digging much deeper into variables such as hours worked by industry and worker age by region. But it didn’t bother.

Background

New York’s statewide minimum wage was equal to the federal level of $7.25 prior to 2013, when Cuomo signed a bill increasing it in stages to $9 an hour by 2015. In 2015, the governor introduced a proposal to raise the minimum wage to $15 on a statewide basis. However, at the insistence of the then-Republican working majority in the state Senate, the enacted law imposed this regionally differentiated schedule, as shown in this state Labor Department chart:

The asterisks in the 2021 column refer to the section of the law stipulating that annual minimum wage increases in the remainder of the state—all of upstate as well as Rockland, Orange, Putnam and Dutchess in the lower Hudson Valley—are supposed to continue under a schedule to be developed by the Labor Department. The first such schedule will be due next October.

Today’s report was issued pursuant to this language in the 2016 minimum wage law:

…[O]n or after January first, two thousand nineteen, and each January first thereafter until such time as the minimum wage is fifteen dollars in all areas of the state, the division of budget shall conduct an analysis of the state of the economy in each region, and the effect of the minimum wage increases listed in this section, to determine whether there should be a temporary suspension or delay in any scheduled increases. In conducting its analysis, the division of budget shall consult the department, the department’s division of research and statistics, the United States department of labor, the federal reserve bank of New York and other economic experts. The division of budget will reference well-established economic indexes and accepted economic factors, including those set forth in section six hundred fifty-four of this article, to justify and explain its decision. After reviewing such indexes and factors, the division shall determine whether scheduled increases in the minimum wage shall continue up to and including fifteen dollars. The division of budget will issue a report and recommendation to the commissioner, who shall take action on that report and recommendation pursuant to section six hundred fifty-six of this article.

There’s no evidence that DOB consulted the U.S. Labor Department or any other “economic experts” before issuing today’s study. Oddly, far from evincing any contact with the Federal Reserve Bank of New York, the report didn’t even cite a recent analysis of the minimum wage by Fed researchers who used an entirely different methodology to reach a similar conclusion. (The Fed analysis was seriously flawed on other grounds, as argued here.)

Ironically, given the source, the report also ignores the budgetary impact of the minimum wage. Just two weeks ago, DOB issued a mid-year financial plan update showing that New York faces a $6 billion budget gap for fiscal 2021, due mainly to a Medicaid spending overrun of about $4 billion.

And the main factor blamed by DOB for the excess Medicaid spending was…the increase in the minimum wage.

What now?

As noted above, the Labor Department is supposed to recommend a schedule for keeping the minimum wage on the path to $15 an hour, after 2021, in the upstate and Hudson Valley counties that are still lower. Today’s report concludes with this line:

Pursuant to Budget Division’s mandate under NYS Labor Law § 652(6), the Division (of Budget) will continue to closely monitor New York employment and wage trends in each region with the goal of sustaining the economic well-being of the State workforce.

Based on the administration’s output so far, upstate employers could be excused for viewing that as less a promise than a threat.

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.