As Labor Day weekend arrives, another push by Albany legislators to hike the state minimum wage is gaining steam.
The current effort piggybacks on a 2016 state law under which the mandatory minimum wage for most occupations (the “general” minimum wage) was elevated to $15 an hour in New York City a few years ago, reached $15 an hour in Westchester and on Long Island this year, and is on a trajectory to reach $15 an hour within the next few years in the rest of the state (where it’s currently $13.20 per hour).
Senate Labor Committee Chair Jessica Ramos of Queens and labor allies are ginning up support for S. 3062, her bill to tie annual minimum wage hikes to the consumer price index. The Assembly version is sponsored by Labor Committee chair Latoya Joyner of the Bronx, who says the measure will “protect” the state’s lower-wage workers from inflation.
What it won’t protect against: Joblessness.
That’s likely to worsen, particularly among New Yorkers who are younger and less educated (and disproportionately minorities), based on recent analyses.
That wage hikes reduce employment prospects for these vulnerable groups is among the strongest findings from the past few decades of economic research on the impact of minimum wage hikes, according to a meta-analysis issued last year by the National Bureau of Economic Research (NBER). The co-authors found that 79 percent of economic studies of wage hikes show negative employment impacts, with the strongest evidence of impact on the least-educated, lowest-skilled individuals. That impact is often obscured, they found, because employers faced with wage hikes not only hire fewer workers, but they also substitute higher-skilled workers for lesser-skilled ones.
Separately, the non-partisan federal Congressional Budget Office (CBO) last year assessed the impact of a bill (dubbed the “Raise the Wage Act”) to hike the federal minimum wage from $7.25 to $15 per hour, and then increase it at the rate of inflation. In other words, the proposal would put the entire nation under the wage regime Senator Ramos is proposing.
CBO found the bill would reduce employment nationally by an estimated 1.4 million. Like the NBER paper, CBO determined the greatest impact would fall on younger, less-educated individuals, about half of whom would drop out of the labor force entirely within a few years. CBO also determined the bill would contribute to inflation by causing some businesses to raise prices.
It’s likely that New York has already lost out on tens of thousands of jobs due to the 2016 wage hike law. And it seems safe to assume S. 3062 would make the situation worse, if you agree with CBO’s common-sense view that wage hikes that guarantee an annually increasing wage floor (as opposed to one-time hikes to a fixed level) are more likely to prompt a change in hiring practices by employers planning for the future. Indeed, a 2019 Journal of Human Resources paper found that employers react much more strongly to wage hikes indexed to inflation than to one-time adjustments.
Ramos herself touts the predictability of the wage hikes in S. 3062 as a boon for business planning. But what will those plans be? They may well entail layoffs, reduced hiring and price hikes for consumers. For small businesses, it could mean preparations to move out of state or close shop.
CBO’s projections of job loss helped sink the Raise the Wage Act at the federal level. But New York doesn’t have a legislative budget office to make transparent the anticipated costs and benefits of proposed laws. That enables state legislators to cast a vote to raise wages for some without facing up to trade-offs like expected job loss.
Wage hike supporters say they want to ensure a “living wage,” but those receiving the minimum wage (based on federal data from the Department of Labor’s Bureau of Labor Statistics) include many part-time and seasonal employees. They’re also disproportionately young, single people not supporting a family on their salary. The invaluable thing they get from a minimum wage job is work experience that gets them on that crucial first rung of the career ladder.
The best way to protect their future is to ensure plentiful job opportunities.
On that front, the Legislature remains AWOL. Rather, its enacted tax hikes that have helped foster the nation’s second-worst business tax environment (to New Jersey), based on the Tax Foundation’s 2022 State Business Tax Climate Index. The burden rose again most recently due to a spike in the per-employee tax New York employers must pay for unemployment insurance —a result of the state’s Covid-induced job losses. The state’s elected leaders chose to use Covid relief funds for new spending instead of alleviating that new burden on employers, although most similarly situated states chose to do so.
Even amidst the current, tight national jobs market, the Empire State’s post-pandemic jobs recovery remains among the weakest in the nation. The state’s unemployment rate also remains 26 percent above the national average (4.8 percent vs. 3.8 percent).
More alarming are the storm clouds brewing on the horizon. The outlook for job creation going forward is dark. Economic warning signs are everywhere. Economists view ongoing high inflation amid rising interest rates as a sign that the nation is entering a downturn that will yield an extended period of slower job growth and increased unemployment — if not a major recession.
Mandatory wage hikes offer politicians a crowd-pleasing solution to consumer price inflation. But in economics, “There are no solutions. There are only trade-offs.” The Legislature needs to grapple with those trade-offs before risking further damage to the state’s fragile economy.