Commentary: Pa. youth can’t afford Wolf’s minimum-wage hike
Author: Michael Saltsman
Publication Date: March 2017
Newspaper: Philadelphia Inquirer
Gov. Wolf seems to believe the third time will be the charm.
After failing to convince the Pennsylvania legislature of the wisdom of a $10 minimum wage in 2015 and 2016, the governor decided the key to success was to demand more, and he is now calling for a minimum-wage increase to $12.
A $10 wage floor was already a troublesome bet for Pennsylvania. A 2014 study conducted by the nonpartisan Congressional Budget Office, based on a review of 60 academic studies, found that a federal $10.10 minimum wage would cost the country 500,000 jobs. Researchers from Miami and Trinity Universities replicated this methodology at the state level and determined that more than 16,000 of these jobs would come from Pennsylvania.
A $12 minimum wage reaches further up into the wage distribution, and thus has a more-harmful impact: The CBO methodology shows that more than 40,000 jobs would be lost in the commonwealth.
Wolf’s proposal is a head-scratcher, given that the state is well-positioned to welcome businesses escaping New York’s punishing minimum-wage requirements. My organization was contacted by one such employer, who left the upstate town of Owego, for Sayre, Pennsylvania, when New York’s new wage requirements made his call center unprofitable.
For those businesses that can’t pack up and leave New York, the increase has forced difficult decisions. The Del Rio Diner in Brooklyn closed its doors this summer after 40 years in business. The owner, Larry Georgeton, stated, “The minimum wage, that’s what broke the camel’s back. It killed us.”
He’s hardly a unique case – numerous other restaurants in New York have closed in recent months, citing the crushing wage costs.
For those that remain open, employees now have fewer opportunities to earn income: Longway’s diner in Watertown is no longer open 24/7 due to wage increases; restaurants like P.J. Clarke’s in New York City have stopped hiring bus boys; Lagmitz Paper and Plastics in Brooklyn laid off two employees due to the state’s new minimum-wage hike.
The harsh economic reality is that most affected businesses – restaurants, daycares, call centers – already face razor-thin profit margins and price-sensitive customers. That means a 65 percent increase in entry-level labor costs cannot be absorbed by price hikes or reductions in profit.
As these stories show, often the only option left to business owners – short of closing – is cutting labor costs. In practice that means less hiring, more layoffs, reducing hours, and investing in automated and self-service alternatives.
These aren’t job opportunities Pennsylvania can afford to lose. The state has a 16 percent youth unemployment rate, but it’s more than 26 percent for African American young adults. In Philadelphia alone, the youth unemployment rate is averaging 27 percent. And, in some urban neighborhoods, these rates can exceed 60 percent.
The governor should know a thing or two about the value of work for these young adults: His administration has committed millions of dollars to help them find employment. It’s a good investment, too – numerous studies document the long-term career benefits of an entry-level job. But Wolf is now working at cross-purposes with his youth-employment initiatives by raising the cost to hire and train them.