New York’s Minimum Wage Attack...
...on Small Business
Traditionally, Republicans, business groups and economists have opposed increases in the minimum wage. Alas, though, one can always dig up exceptions – particularly in New York.
On Wednesday, July 21, the New York state legislature – with the state senate controlled by Republicans and the state assembly by Democrats – voted to hike the minimum wage in the Empire State from the current federal level of $5.15 to $6.00 in 2005, $6.75 in 2006 and $7.15 in 2007. By the way, this is the same state legislature that voted in bipartisan fashion last year to raise income and sales taxes in order to support profligate government spending.
Governor George Pataki, a Republican, has not decided if he will sign the minimum wage increase into law or not. Just before the bill was passed, Pataki said: “I’d prefer to see it done on a federal level, but I do believe the minimum wage should be raised.” How’s that for staking out a principled position?
So, there’s the surrender by the New York GOP. These Republicans obviously are pandering to labor unions, but in reality, anyone who is going to vote on the issue of raising the minimum wage is highly unlikely to ever pull the lever for Republicans. The strategy here seems to be try to get votes beyond Republican reach, while alienating a potentially key support group in business owners – so much for clear political thinking.
But what about business groups? They must be unified against a measure that raises labor costs, and hurts the bottom line – right?
In a July 22 Albany Times Union article, it was reported that Mike Wood “employs seven people a the Collamer Stop & Shop just east of Syracuse.” Wood explained that summer jobs for one or two high school students would be in peril with a minimum wage increase. He also said, “What typically happens when the minimum wage goes up, everybody else thinks their pay should go up too.” That also means, as Wood observed, high workers’ compensation and unemployment insurance costs. Don’t forget about payroll taxes as well.
In fact, most business groups in New York have opposed the minimum wage hike – with one glaring exception. A New York City-based group – the Partnership for New York City – came out in favor of a higher state minimum wage on July 14. This group has been out of the business mainstream before, however. Last year, it actually was prepared to publish a letter supporting an effort then by Mayor Michael Bloomberg, another Republican, to impose a commuter income tax, until Governor Pataki requested they hold off doing so, as was reported in The New York Times on April 9, 2003.
So, there’s a business group working explicitly against the interests of business and in favor of measures that will hurt New York’s competitiveness and economy.
Finally, there are the economists. My colleagues in the economics profession disagree on most issues, but they have been remarkably unified over the decades on the ills of government raising the minimum wage.
Indeed, the economics are straightforward. When government arbitrarily interferes with the market by setting and/or increasing a minimum wage, then there will be less demand and fewer jobs available for low-skilled, inexperienced workers. As a result, an increase in the minimum wage hurts the very people it’s supposed to help. As for businesses that cannot replace low-skilled workers through increased automation or by shifting duties to higher skilled employees, the increased costs of a minimum wage hike are paid for by owners through reduced profits or fewer resources available for expansion, by consumers through higher prices, or by other employees through reduced wages or benefits.
Over the decades, countless economics studies have shown the costs of increasing the minimum wage. A July 2004 report from the Employment Policies Institute, authored by economists Richard V. Burkhauser and Joseph J. Sabia from Cornell University, highlighted some of the problems for New York. They estimated that the proposed minimum wage increase in New York would cost employers and consumers $880 million annually. Meanwhile, only about 14 percent of that would go to the working poor. However, the authors add, “These estimates overstate the benefits of a minimum wage hike for the working poor because some of them will lose their jobs.”
Still, a handful of economists can be unearthed who stand willing to ignore the laws of economics and claim that a minimum wage increase has no ill effects. They can be found on the left-wing, pro-labor union side of the political spectrum. For example, in a July 27 article, reporter Gwendolyn Bounds of The Wall Street Journal highlighted arguments put forth by the Albany, N.Y.-based Fiscal Policy Institute asserting that a higher minimum wage doesn’t hurt employment or small business. Unfortunately, the article missed the substantive economics of the issue, along with the lefty, labor union slant of the institute.
In New York, you can find Republicans, at least one business organization and an economic research group willing to ignore political, business and economic realities in order to support a higher minimum wage. If Governor Pataki signs the minimum wage hike into law, though, it will be more difficult to find businesses in New York able to create jobs, particularly for low-skilled, inexperienced workers. In the end, a minimum wage increase is anti-business and anti-worker.
Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
