Unintended Consequences of a $15 NJ Minimum Wage - Hurting the Workers It's Meant to Help

Date: March 13, 2018

An editorial by NFIB NJ State Director Laurie Ehlbeck

The following opinion column by Laurie Ehlbeck of NFIB NJ was just published in New Jersey Business on March 13, 2018.

If the New Jersey legislature passes SB864, which raises the minimum wage to $15.10 an hour over five years, the low-wage workers it is intended to help could be out of a job.  Very recent minimum wage research shows a tipping point that results in job losses so significant, that people at the low end of the pay scale are hurt far more than they are helped.

It’s worth looking at a study last year contracted by the City of Seattle to measure the impact of that city’s second incremental wage hike to $13 an hour on the way to $15. It found nine months after that incremental pay bump, about 5,000 low-wage jobs disappeared, the number of hours worked by low-wage workers dropped by 3.5 million hours, and their wages dropped by $6-million.

A new 2018 report on why teen unemployment has continued to rise, by George Washington University’s Mercatus Center, shows increases in minimum wage were the main reason. The research determined “No evidence was found to suggest that higher minimum wages for teens leads to higher future earnings; if anything, the evidence points to the opposite effect.”

And, a December study of California’s minimum wage hikes over three decades found there was a measurable decrease in employment among affected employees, and that each 10-percent increase in minimum wage led to a nearly 5-percent reduction in employment in industries with a higher percentage of minimum wage employees.

If you put yourself in the shoes of a small business owner, you can better understand the outcome of these studies. Facing the cost of a mandated wage increase, private employers must not only increase the pay of employees who fall below the new minimum. If workers making just above that amount aren’t also moved up on the wage scale, productivity is likely to suffer. There is also a 7.56% payroll tax the employer pays on the added wages. Many small businesses operating on a thin profit margin may simply not be able to afford these added costs.

Raising prices of the goods or services may not be an option if the marketplace won’t pay more. That leaves hard choices like eliminating jobs and cutting hours.

To determine how SB864 will impact New Jersey, NFIB used a regional economic modeling firm, REMI, which has performed policy impact studies for at least at 28 states and many universities. The resulting NFIB Research Foundation report shows that if SB864 passes, New Jersey would see private sector job losses of 119,000 over a decade, and real output reduced by $89 billion. Most of the job losses take place in the small business sector.

New Jersey’s motto is “Liberty and Prosperity.” When considering this legislation, it is critical for state lawmakers to be sure small businesses, their employees, and the state economy will continue to prosper by considering unintended consequences of this minimum wage proposal.

Laurie Ehlbeck is the state director for the National Federation of Independent Business which represents 5,000 small businesses in New Jersey



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