Minimum wage or maximum burden?

Albany lawmakers are calling for another increase in the state’s minimum wage. New York’s mandated minimum hourly wage of $15 downstate and $14.20 upstate already exceeds that of most states (except Washington at $15.75, California at $15.50, and Massachusetts at $15), and continuing post-pandemic workforce shortages have already driven up wages in many sectors.

A minimum wage increase would only help a small percentage of the state’s workforce but adversely impact a large share of small businesses across the state, especially those in the hospitality and retail sectors. Simply put, a minimum wage hike is a cost mandate that will result in increased prices, reduced profitability, and reduced spending on labor or additional business needs.

Despite that, there are currently two major minimum wage proposals in New York, one far more costly than the other. Both proposals would tie future minimum wage increases to inflation, but one calls for a 40% increase before doing so. The Business Council does not see a current need to mandate higher wages, but since two branches of state government are motivated to do so, we hope the more sensible and manageable approach prevails.

A legislative proposal to phase in a $6 increase in the minimum wage, then apply inflation indexing, is described by advocates as forcing “corporate America to pay a living wage,” even though, in most cases, “corporate America” already does. Instead, this proposal will primarily harm small businesses, especially in sectors still struggling to recover, particularly those in the urban districts of the lawmakers behind the push.

Let’s begin with the math. A $6 per hour wage hike equals a $12,000 per employee increase yearly. For a small business with five employees, that is a $60,000 increase, requiring that the small business increase sales by $60,000 just to break even. Assuming the employer’s customer base does not expand enough to do so, there are only a few options left for the owner, including increasing consumer costs, diverting resources from other purposes, attempting to become even more “efficient,” or what typically happens, reducing labor costs by other means such as a reduction in hours or elimination of jobs for some workers.

In fact, some argue that a minimum wage increase actually hurts the employees it’s intended to help. The Federal Reserve Bank of St. Louis recently observed, “Increasing the minimum wage provides economic incentives for firms to adopt new technologies that replace workers. That is, a higher minimum wage raises the cost of labor and increases the range of tasks that are susceptible to displacement by automation.” It went on to recommend policies aimed at “building skills that complement technological change rather than those that can be easily substituted.”

Another problem is that the impact on employers goes beyond just the initial $6 per hour wage increase due to other mandatory payroll costs associated with increasing one employee’s wages. A $20 per hour wage equates to an additional 18% payroll cost, per employee, to such funds as Social Security, Medicare, workers’ comp, and New York State Short-Term Disability Insurance.

Lawmakers also need to consider the timing of these proposals. Inflation is still hurting the state and national economy, which in turn is causing small businesses, much like everyday consumers, to pay higher costs for a wide range of essential business inputs, including rent, energy, and materials.

The Business Council represents approximately 3,200 businesses, of which 70% are small businesses. Every day we hear from employers about the challenges they face while running a business in New York, including costs and mandates impacting their workforce. An increased minimum wage will significantly increase costs on those employers least able to absorb increased costs, putting businesses and jobs at risk.

The Business Council believes that the state’s long-term future requires improvements in overall economic competitiveness. Imposing increased costs on employers, including an increased minimum wage, contradicts that objective.

If lawmakers really want to help the state’s economy, there are many ways to do so that help both businesses and employees and alleviate the burdens that employers face so they can grow and create jobs. Such actions include helping manage the state’s Unemployment Insurance debt, avoiding new mandates that increase costs, investing in child care for employees, and investing in education to upskill our future workforce.

These goals should be our priority for those who employ our families, particularly during these difficult economic times throughout our state and the nation.