McMahon: Higher minimum wage bad for jobs
Despite a big push from Assembly Speaker Sheldon Silver (D-Manhattan) and at least tacit support from Gov. Andrew M. Cuomo, the conventional wisdom in Albany is that a proposed increase in New York's minimum wage won't go anywhere before the legislature adjourns next week.
Here's hoping the conventional wisdom is right, for once. A minimum wage hike continues to be a bad idea, and Senate Majority Leader Dean Skelos (R-Rockville Centre) and his Republican caucus have had good reasons for opposing it.
The Democrat-dominated Assembly last month passed Silver's bill raising the state's hourly minimum by 17 percent, from the $7.25 federal level to $8.50 an hour, and allowing it to rise with inflation in the future. But the case for a higher wage floor hasn't gotten any stronger since the speaker first put it on the table back in January.
To begin with, the main selling point is a false pretense: the notion that large numbers of New Yorkers are struggling to get by solely on the measly $15,000 a year generated by a full-time minimum-wage job. In fact, according to the state Office of Temporary Disability Assistance, the average placement wage for welfare recipients transitioning to work is already $8.50 an hour.
New York's working poor also qualify for big cash transfers from the state and federal governments, including Food Stamps, the Earned Income Tax Credit and other refundable tax credits. These programs can almost double the annual income of a single parent working full-time in a low-wage job.
Most research continues to suggest that minimum wages reduce employment opportunities, especially for the young and unskilled. Further evidence of this comes from a new study by economists Richard Burkhauser of Cornell University, Joseph Sabia of San Diego State University and Benjamin Hansen of the University of Oregon.
The trio looked closely at what happened in New York between 2004 and 2006, when the state raised its minimum wage by $1.60 to $6.75 per hour. Their main finding: Employment dropped by more than 20 percent for individuals aged 16 to 29 who lacked a high school diploma.
If proponents are correct in estimating that Silver's bill would raise wages by nearly $1 billion, that means it would also be equivalent to a $1-billion tax hike for affected employers. Supporters have tried to turn even this negative into an economic positive, claiming the increased purchasing power of low-wage workers would stimulate a net job gain in New York.
But by that logic, why stop at $8.50? Why not $10, or $20?
The problem is that the money wouldn't drop out of thin air. Employers forced to pay more will reduce their own consumption, hire fewer workers, invest less in their businesses, or raise prices for consumers. None of those things will help the economy grow.
Questionable reasoning aside, the state Capitol has seen no lack of moral posturing around this issue. Some advocates for the poor have embraced a wage hike out of altruistic motives, but the real impetus for this election-year proposal is political. Raising the minimum wage is a perennial lobbying priority of organized labor. That's because it would reduce competition for the dwindling number of unionized private-sector workers, who generally are paid more. It also would add to the competitive edge for large, partially unionized companies like Costco, the big-box wholesaler, which broke with most of the business community in endorsing Silver's bill.
If New York's minimum wage is forced up, the main losers are likely to be young, unskilled workers and the businesses that employ them, especially small firms already operating close to the margin.
Three years into an unusually weak economic recovery, with unemployment rising again, why promote a policy that puts anyone's job at risk?
E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.