Rotten Deal on New York Wages
Author: Michael Saltsman
Publication Date: March 2013
Newspaper: New York Post
Topics: Minimum Wage
Republicans in the state Senate have reportedly agreed to raise New York’s minimum wage in three steps over three years to $9 an hour, in exchange for some tax breaks for businesses.
It’s a bad deal.
Such compromises have national precedent: In a similar federal agreement in 2007, well-meaning legislators thought a series of small-business tax cuts would offset the damage caused by a minimum-wage hike.
Oops: Economists from Miami and Trinity universities found that teen employment fell regardless, with a nearly 7 percent drop in employment for 16- to 19-year-olds in states that felt the full brunt of the 40 percent hike.
That should serve as a lesson for Albany lawmakers who think they can take with one hand and give with the other.
The debate over a higher minimum wage always starts with the debate over jobs, and with good reason. In New York, the unemployment rate for teens stood at 28 percent last year, one of the highest rates in the country. Now legislators would raise by 24 percent the cost to hire and train this group of jobseekers — putting jobs further out of reach for this vulnerable population.
Need proof? After New York’s last minimum-wage hike, a team of economists from Cornell University, San Diego State University and the University of Oregon found a drop of more than 20 percent in employment for less-educated young adults in the state. An Employment Policies Institute analysis of Census Bureau data estimates that a $9 minimum would kill over 27,000 entry-level jobs in the state.
Labor union-funded advocacy groups such as the Fiscal Policy Institute and the National Employment Law Project brandish two studies that (they claim) offer proof that a higher minimum wage won’t reduce employment. In fact, both studies have been decisively debunked in a National Bureau of Economic Research paper from economists at UC-Irvine and the Federal Reserve Board.
In any case, the overwhelming majority of studies — 85 percent of the most credible research from the last two decades — point to a loss of jobs following a wage hike.
There’s another problem: Hiking the minimum wage doesn’t do what liberals most want it to do — reduce poverty. Twenty-eight states (including New York) raised their minimum wage between 2003 and 2007, yet Cornell and American University economists found no drop in poverty rates.
A quick look at Census data on who’d be affected by a $9 minimum wage in New York explains why. The average family income of a beneficiary is $58,303 — far above what anyone can earn working full time at the minimum wage. That’s because many of those covered by the wage billaren’t the main breadwinner in their family. For instance, 43 percent are living at home with family or relatives. By contrast, just 8 percent are single parents supporting children.
And the state and federal governments have already done a considerable amount of work to help this last group. With the Earned Income Tax Credit, the effective minimum wage for a single parent with two children is roughly $10.50 an hour — more than the $9 that New York is looking at.
By the way, there is one rarely mentioned winner from these hikes: unions — whose contracts often tie pay to the minimum wage. Now you know why union-backed groups keep pushing those debunked studies.
The takeaway for New York legislators is simple: If you’re interested in appearing to help the poor, then hike the minimum wage. But if you actually want to do something about poverty, strengthen the EITC instead.
That’s a deal that low-income New Yorkers, the state’s businesses and the teens who keep their jobs can all get behind.
Michael Saltsman is the research director of the Employment Policies Institute.