New York State's minimum wage would rise to match inflation under Hochul plan

ALBANY — One of the most potentially consequential proposals in Gov. Kathy Hochul’s State of the State address last week would require the minimum wage to rise with inflation annually for hundreds of thousands of workers to “tackle the affordability crisis head-on.”

Supporters argue her proposal to “index” the minimum wage to inflation would not only serve fairness and social justice, but boost the economy by putting more cash into the hands of consumers and help more New Yorkers to leave social services.

But big unknowns remain.

Among them are whether the proposal will cost some low-wage workers their jobs because employers, particularly small businesses, can’t afford the cost of frequent increases. Another is whether the proposal will fuel more inflation, exacerbating the economic pain of the working poor as well as employers.

The proposal soon will go to the Legislature, where progressive lawmakers are pushing an even more generous measure sponsored by Sen. Jessica Ramos (D-Jackson Heights).

Hochul’s proposal would increase the minimum wage of $15 per hour on Long Island, New York City and Westchester, which was phased in under a 2016 law, by tying it to annual inflation increases. The wage would never drop in times of deflation. The current upstate minimum wage is $14.20 an hour.

The annual increase, however, would be capped at a figure Hochul hasn’t yet released. That’s a safeguard against spikes in labor costs that could force employers to cut jobs. Hochul’s proposal also calls for an “off ramp” triggered by “certain economic or budget conditions” that aren’t yet specified.

Most of those details are expected to become clearer when Hochul releases her budget proposal to the State Legislature later this month.

“If costs go up, so will wages” under her proposal, she said, calling the idea “a matter of fairness and social justice.”

History shows raising the minimum wage also pressures higher wages for other workers earning low or moderate paychecks.

“Like other states that have implemented this policy, we will put guardrails in place to make increases predictable for employers, and create flexibility in the event of a recession,” Hochul said.

Hochul administration officials cited studies that show “that raising the minimum wage can lead to reductions in poverty, reduced social assistance spending, stimulative spending, improved worker productivity, and other benefits.”

Other studies, however, show that among economists the merits and drawbacks of the issue continue to be debated.

The Economic Policy Institute, a left-leaning think tank in Washington, D.C., said that automatically increasing the minimum wage “guarantees regular and predictable raises and prevents growing pay inequality between the lowest-paid workers and the middle class.”

Yet the Congressional Budget Office studying a similar proposal in Washington said median wages historically have grown faster than inflation, and the office projects that to continue for the next 10 years.

Business operators who would have to pay frequently increasing minimum wages see a bigger concern.

“When you force business to pay a minimum wage, they have to make choices,” said Peter Warren, director of research at the Empire Center for Public Policy think tank in Albany. “They have to raise prices, and ultimately they have to make the choice to hire people.”

“You are telling businesses that, generally speaking … it will be more expensive every year,” Warren said. He said frequent increases in the minimum wage will cut jobs for New York’s most vulnerable and less-educated and scare away prospective employers looking to set up shop in New York state.

And when the minimum wage is raised, that’s just the beginning for employers. Also rising would be worker’s compensation costs, payroll taxes, family leave costs and more at a time when companies face the highest inflation in decades.

“If we’re trying to control inflation, this hurts everybody,” Warren said. “You just contribute to the cycle.”

The cost of hiring in New York also makes automation more cost-effective, which could wipe out more entry- and low-level jobs, said Kenneth Pokalsky, vice president of the state Business Council.

“It’s been a pretty tight labor market for a couple of years and there probably are not that many businesses paying minimum wage these days,” Pokalsky said. “It gets to the question, ‘What’s the point of doing this now?’ ”

The current growth in inflation continues to slow. On Thursday, the federal Bureau of Labor Statistics released December’s consumer price index that showed costs declined by one-tenth of 1% in December after increasing by the same amount in November. Overall, prices were 6.5% higher in December compared to a year earlier, down from November’s 7.1%. December’s rise was the smallest increase since October 2021.

But for the working poor who have been hit hardest by the pandemic and then inflation, help is needed now, advocates said.

“The reality is that increasing the minimum wage and increasing wages for people at the bottom of the economic ladder helps them climb that ladder and is better for the economy and employers,” said Ron Deutsch, director of New Yorkers for Fiscal Fairness.

Twenty-seven states are increasing their minimum wages this year and 11 require raising the wage with inflation, according to the National Conference of State Legislatures.

Those helping the working poor make ends meet welcomed Hochul’s proposal, but also say it's not enough.

“Indexing the minimum wage to inflation is great — but only if the starting point is actually a livable wage,” said the Rev. E. West McNeill, a leader in the Poor People’s Campaign. “Whether you live upstate or downstate, our current minimum wage is too low. We need the minimum wage to be a living wage and then index it from there."

That’s the sentiment behind a bill sponsored by Ramos, chairwoman of the Senate Labor Committee. Her bill would raise, in phases, the minimum wage to $21.25 for Long Island, New York City and Westchester and $20 upstate by 2026, followed by annual increases based on the inflation rate.

For Long Island, Westchester and New York City, that would mean a rise in the minimum wage to $17.25 on Jan. 1, 2024; $19.25 on Jan. 1, 2025; and $21.25 on Jan. 1, 2026.

“We want the urgency of the moment to be taken seriously,” Ramos said. “We’re hoping that the minimum wage is raised … so that we can help more working families keep a roof over their heads and catch up on their bills.”

By Michael Gormley

michael.gormley@newsday.com@GormleyAlbany

Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.