At A Minimum, This Is A Disaster!

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The Daily Point Headers

The minimum wage is back in the news in New Jersey with a vengeance.  Much to the chagrin of small & independent businesses and many economists, the New Jersey legislature is poised to increase the minimum wage to $15 per hour over the next few years.

New Jersey’s current minimum wage is $8.38. Voters in 2013 approved a $1 hike up to $8.25, along with linking future increases to inflation. The first adjustment due to inflation occurred in 2015, but the minimum wage stayed the same for 2016 because there was no inflation last year.

Last month, Senate President Stephen M. Sweeney (D-Gloucester) and Assembly Speaker Vince Prieto (D-Hudson) announced they’re backing legislation to hike the wage to at least $15 by 2021. Under the Democrats’ bill, the minimum wage would jump initially to $10.10, with subsequent annual increases until it gets over $15.

– NJ Spotlight

They raised the minimum wage in 2013 and then tied the increase to inflation.  The problem?  Inflation was flat last year so it didn’t go up.  Now the lawmakers in Trenton have a fix for that. Emboldened by a new report that shows just how many Garden State workers would be impacted by the new wage, the drum beat to raise the wage continues in earnest.

njpp.org

Of course this paints a picture using only one side of the conversation.  What’s not shown here is how many of these workers will lose their jobs as a result of the wage hike.  What’s also missing are the number of businesses that will close, relocate out of state and/or begin to pay workers cash under the table having a negative impact on the state’s tax revenue.  

 

What’s more troubling is that the basis for passing the new hike is because the first plan (which at least had an incremental increase based on a market factor) didn’t provide the desired increase.  The new plan just legislates the increase without having to worry about a market indicator.  It just rises over time to hit the dollar figure desired by the politicians.  The support for the plan is based on a projection and not an observation.  Once you look at the observed results of similar hikes in other states, you get a very different picture.
In Seattle, the month after passing a new $15 an hour hike, more than 1,000 restaurant jobs were eliminated. This was the largest decline since 2009 in the middle of what some economists call “The Great Recession”.

EconomicPolicyJournal.com

In Oakland after the city passed a measure raising the minimum wage one of the unintended consequences was the negative impact on the childcare industry.  In fact even the Salvation Army is facing cuts to child care slots because of the razor thin margins that this hike impacts.

Workers who benefit from Oakland’s minimum wage hike might soon lose a service that enables them to work in the first place. It turns out the well-intentioned law is putting a financial squeeze on Oakland’s child care industry, leading some providers to panic.

“We’re scrambling to find ways to keep the doors open,” said Capt. Dan Williams, Alameda County coordinator of the Salvation Army. He says the added payroll costs of providing workers with a $12.25-an-hour wage have put his organization’s Booth Memorial Child Development Center and family shelter $146,000 over budget, which is “quite a bit for a facility that was barely making it as it was.”

If the Salvation Army can’t scrounge up that money by writing grants and finding donors, it might have to cut some of its 63 child care slots. A number of other daycare centers face the same predicament.

– EconomicPolicyJournal.com

According to one of the nation’s former top economists, Diana Furchtgott-Roth who served as the chief economist for the Department of Labor, a minimum wage hike is costly at three levels.  First the dramatic increase in costs for small business, especially the food service industry forcing some businesses to close, second the shrinking of the job market for younger and lower skilled workers and third the potential of outsourcing to other states.

In Seattle, businesses closed at an alarming rate leading up to the minimum wage hike and in it’s aftermath.

In an industry that nearly 40% of the cost of running a business is devoted to labor costs and only about 4% to profits, it’s clear that driving up the labor cost by 60% if you move from approximately $9 to $15 an hour will be unsustainable for many shops.  

… a common budget breakdown among sustaining Seattle restaurants so far has been the following: 36 percent of funds are devoted to labor, 30 percent to food costs and 30 percent go to everything else (all other operational costs).  The remaining 4 percent has been the profit margin, and as a result, in a $700,000 restaurant, he estimates that the average restauranteur in Seattle has been making $28,000 a year.

– SeattleMag.com

This will inevitably lead to several unintended consequences. Let’s face it, in New Jersey the average wage is more than $24 an hour which is barely enough to survive in our high tax burden state.  If the wage is raised to the point where those workers impacted will still have challenges making ends meet yet  the costs of many of the impacted businesses will rise to the point that the future of their business is in jeopardy, who’s actually being helped?  The answer?  The politicians looking for votes among those getting the shport term ‘raise’.  It’s doesn’t have to work beyond votes in the next election cycle. We already know that our politicians think short term about the next election instead of long term regarding how to help our economy grow.  

Does New Jersey really need another reason to move business out of state?  Think about the call centers that still call New Jersey home?  How effectively can those jobs be outsourced?  How quickly will some businesses resort to ‘off-the-books’ payments?  How many college students just looking for work in the summer will be priced out of consideration? How quickly will fast food restaurants and other move to automated self serve kiosks replacing workers completely?

All morning on the radio show I had younger workers calling speaking of how unjust it would be for government to artificially raise a wage without any consideration to experience and education.  Clearly they speak for many in New Jersey opposed to the idea of raising the wage to $15 an hour.

One caller was an EMT, out saving lives and only earning $16 an hour.  One woman called and told me that it took her three years in the workforce and a college degree to get to $15 and hour.  This misguided idea is more than a redistribution of taxpayer wealth going to those in need.  It’s a redistribution of business operating costs with the government deciding a worker’s value to the company.  When a business has to choose between complying with the law and dramatically increasing their costs or eliminating a job, many business owners will have no choice but the latter.

If we really want to help stimulate the economy, creating new jobs and increasing government revenue then let’s bring in businesses to the Garden State by creating an environment where businesses can thrive.  For starters, let’s eliminate the minimum wage all together and give entrepreneurs a reason to relocate to NJ.

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