The Minimum Wage Doesn’t Belong in the State Constitution

Original Article:

  • Author: Michael Saltsman

  • Publication Date: July 2013

  • Newspaper: The Record & Herald News

  • Topics: Minimum Wage

THIS FALL, the most important question on the ballot isn’t who should govern the state in Trenton or represent it in Washington, but whether the state constitution should be altered to hike the minimum wage and put it on autopilot to rise in most years thereafter.

It’s a radical means of pursuing a debatable public policy — and it sets a dangerous precedent for contentious issues that deserve proper debate through the state’s normal legislative process.

It’s surprising that the Legislature even took the extreme step of proposing a change in the Constitution to change the minimum wage. Despite the clear negative impacts of a higher minimum wage, Governor Christie indicated earlier this year that he was willing to sign off on a phased-in increase as long as the minimum wage wasn’t set on autopilot.

But this compromise wasn’t sufficient for Trenton politicians. Their ideological attachment to the minimum wage led them to propose altering the state Constitution rather than debating the best method to help the state’s low-income families. And minimum wage proposals like this one deserve debate precisely because they have the capacity to do tremendous damage to the state’s entry-level job market.

The academic evidence on government-mandated wage hikes clearly shows that they reduce employment for the least-skilled jobseekers. It doesn’t take a doctorate in economics to understand why this happens: Half of the state’s employees affected by the proposed wage hike work in either the retail industry (28 percent) or at businesses like restaurants and hotels (22 percent). These employers only keep a few cents in profit from each sales dollar after paying expenses, and can’t simply absorb a new mandate that raises the cost of their entry-level workforce.

Passing on the cost to the customer can mean a drop in sales, so that’s not an option. Instead, employers are forced to figure out new ways to provide the same service at the same total cost. At a restaurant, that could mean having servers bus their own tables instead of hiring bus boys; at a grocery store, it might mean installing self-service lanes where you can scan and bag your own groceries, no employee required.

Relying on past estimates from economic research, the Employment Policies Institute projects that at least 1,600 entry-level jobs (and as many as 4,700) will be lost as a consequence of increased labor costs resulting from altering the state constitution.

The president of New Jersey Policy Perspective dismissed these lost opportunities as a “rounding error,” but consider whose jobs are at risk. Young people age 21 and under represent more than one-third of employees affected by the wage hike. It’s these jobseekers who can least afford to miss out on early career experience.

Groups supporting the measure seem to believe that a wage hike’s promised effect on poverty outweighs the negative consequences for teens. But a close look at Census Bureau data suggests the state’s low-income families aren’t even well-targeted by this proposal. The average family income of a covered employee is $76,078, and one-quarter of these minimum wage employees are in households with a yearly income of $120,000 or more. That’s because nearly 70 percent of the state’s minimum wage earners are not the sole or primary earner in their family.

By contrast, just over seven percent are single parents supporting children. For these and other truly low-income families, the wage mandate could do more harm than good. A team of economists from the Federal Reserve, University of California-Irvine, and the University of Wisconsin studied the “winners” and “losers” from a minimum wage increase and found that the latter — those who lost hours at work or lost their jobs altogether — outnumbered the former.

The evidence is clear that a higher minimum wage is at best ineffective at reducing poverty, and at worst actively harmful to the state’s entry-level labor market. Unfortunately, decisions about whether to raise it tend to be based on the politics of minimum wage policy rather than its merits.

Raising it is a mistake, but it’s a mistake best left to legislators’ discretion rather than locked into the state constitution with consequences that are nearly impossible to undo.