$15 minimum wage would reduce job opportunities
Author: Michael Saltsman
Publication Date: February 2016
Newspaper: Asbury Park Press
Topics: Minimum Wage
Can a $15 minimum wage in New Jersey reduce poverty and save taxpayers money?
New Jersey Democrats believe so, recently arguing that a 79 percent increase in the state minimum wage from $8.38 to $15 would pull working families out of poverty while saving taxpayers money. Assemblyman John S. Wisniewski, D-Middlesex, made the pitch: “When businesses fail to pay a living wage, government is forced to fill the gap…. Essentially, taxpayers are subsidizing these low-paying jobs and, in the process, suppressing wages for everyone else in the workforce.”
The data suggests otherwise. A new study by Joseph Sabia and Thanh Tam Nguyen of San Diego State University concludes that minimum wage increases have no impact on participation in or spending on public benefits programs. In the most comprehensive analysis on this topic to date, the authors analyzed 35 years of government data across several data sets to conclude that wage hikes do not affect use of the country’s major public benefits programs. This includes Supplemental Nutritional Assistance Program (SNAP), Medicaid, Temporary Assistance for Needy Families (TANF), and others.
The authors identify two factors to explain this finding. First, minimum wage increases are poorly targeted to public benefits recipients: Just 12 percent of those affected by a $15 minimum wage are SNAP recipients, and only 10 percent are Medicaid recipients. In short, today most employees affected by a $15 minimum wage are not in families classified as poor.
Second, the authors confirm the consensus in the economic literature — recently reaffirmed in a paper from the San Francisco Federal Reserve Board — that minimum wage increases cause some loss of employment opportunity. Those who lose jobs, hours, or promotions because of minimum wage increases often must rely on more public assistance, counteracting the positive effects from employees whose employment isn’t negatively impacted.
Rather than reducing poverty or public benefits use, a $15 Garden State minimum wage would reduce job opportunities. New Jersey residents just have to look across state lines to see this negative impact up close. New York State raised its minimum wage dramatically for both fast food and table service restaurants, and is already feeling the consequences. Restaurants like McGirk’s Irish Pub in Binghamton, Pizzetteria Brunetti in Manhattan and Betty’s in Buffalo have all been forced to cut employee hours because of the costs associated with the wage hike. (There are many other similar stories.)
These aren’t job opportunities New Jersey can afford to lose. The state’s youth unemployment rate averaged 17.9 percent in 2015, and in places like Essex County (Greater Newark), the rate was even higher at 43.8 percent. These young adults don’t need a raise. They need a job. If they don’t find work soon they will be permanently locked out of the workforce due to a lack of career skills.
Instead of raising the minimum wage to $15 in a misguided quest to reduce poverty, Assembly Speaker Vincent Prieto, D-Hudson, should consider expanding a solution that has a proven track record, the Earned Income Tax Credit. The EITC is a refundable tax credit that supplements the paychecks of low income households through the tax code without creating additional burdens on low-margin employers that result in job loss. (New Jersey offers its own supplement to a federal credit.) In other words, it tops up pay while keeping career pathways open.
Though a $15 minimum wage is politically popular, it is not practically effective. Neither poverty nor public benefits use would fall if it were implemented. Poverty should not be a partisan issue, and New Jersey politicians should look for the best solutions rather than the best sound bites.