Small-Business Group Asserts Minimum Wage Hike Would Jeopardize Jobs

Hank Kalet | June 28, 2013 | More Issues, Politics
Study claims more than 30,000 positions would have to be dropped because of increased expenses

Tens of thousands of jobs would be lost in New Jersey if the state’s minimum wage increases, according to a study by a small-business coalition.

The claim adds new fuel to the debate over hiking the state’s minimum wage, less than five months before voters determine the fate of a $1 increase and proposed indexing of the state’s minimum to inflation.

The study by the National Independent Business Federation says that New Jersey could lose about 31,000 small-business jobs over the next decade if the referendum question passes. The reason, according to the study, is that the wage hike and indexing would increase business costs and create a level of uncertainty for business owners about their labor expenses.

Supporters of the wage hike, however, say the study is misleading and does not account for the widespread impact that increased wages would have on the economy. The boost in income for low-wage workers will act as a stimulus, they argue, because workers earning the minimum or near the minimum will then spend money they currently do not have, which will create additional revenue for small businesses.

The minimum wage increase will be on the Nov. 5 ballot as a constitutional amendment, along with the election of the governor and the entire state Legislature.

The Senate and Assembly approved an increase to $8.50 with indexing in December, but Gov. Chris Christie conditionally vetoed the bill. He offered a $1 increase phased in over three years without the cost-of-living indexing, but also agreed to restore the state Earned Income Tax Credit, which is given to low-wage workers. The EITC had been cut from 25 percent to 20 percent of the federal tax credit as part of the 2010 budget negotiations.

Rather than pursue an override, Democrats in the Legislature approved a constitutional amendment, which required affirmative votes of both houses in successive calendar years. The amendments passed both houses twice in party-line votes, with the final vote coming in February. Sen. Jeff Van Drew (D-Cape May) was the only legislator to cross party lines.

The last increase in New Jersey’s minimum wage occurred in 2005, when it went from $5.15 an hour to $7.15 an hour over two years.

A 2009 federal minimum-wage increase pushed the New Jersey rate to $7.25 an hour, which is where both rates currently stand.

The 2005 legislation created an NJ Minimum Wage Advisory Commission, which has consistently reported that the wage’s spending power has lost ground to inflation.

The new policy brief was paid for by the NFIB, the state Chamber of Commerce, the New Jersey Retail Merchants Association, the New Jersey Farm Bureau and the Common Sense Institute of New Jersey, a libertarian-leaning think tank.

The report comes a week after a coalition of labor unions and liberal advocacy groups officially launched its Raise the Wage campaign, unofficially setting the parameters of the debate that will lead up to the November vote.

According to the report, which was written by Michael Chow of the NFIB, the minimum wage hike would “constitute a direct increase in employer costs” that could rise to as much as 62 percent if the cost of living rises to 4 percent. The study says the new minimum wage would have a ripple effect that would increase pay for those making more than but close to the minimum wage. The additional cost to businesses would result in job losses, the study concludes.

“The long-run effect of the legislation would be the destruction of jobs and economic production in the state of New Jersey,” the report says. “Depending upon the rate of inflation in future years, passage of (the wage amendment) could result in over 31,000 lost jobs in New Jersey over a 10-year period and a cumulative reduction in real output of $17.4 billion over that same time period. More than 59 percent of the lost jobs would be jobs from the small business sector of the economy.”

James Blake, vice president and chief financial officer of the Morey Organization, said during Wednesday’s press conference unveiling the policy briefing that the wage increase would also affect summer hiring. The Morey Organization owns and operates three amusement piers, two water parks and hotels, restaurants and stores in Wildwood and Wildwood Crest.

Blake was quoted in an NFIB press release as saying the proposed hike would hit Shore businesses, which are reliant on part-time summer workers, extremely hard.

“We hire hundreds of young people to work at our attractions every year,” he said. “The cascading effect of raising the minimum wage will increase our operational costs and hinder our ability to hire and to run one of the Jersey Shore’s economic engines at affordable prices for families.”

Polls have consistently shown that voters support the minimum wage ballot question by large margins with the most recent survey – and Rutgers –Eagleton poll conducted June 17 – putting support for the increase at 77 percent.

The polling was one of the important reasons for issuing the policy brief, said Michael Egenton, senior vice president for government relations at the New Jersey Chamber of Commerce.

“We see the polls and we know there is public interest going into the voting booth,” he said. “We want to educate and inform the voters that there are consequences and ramifications of their voting on this and the impact it will have on the business community.”

Voters need to understand that businesses, when faced with increased costs, end up either passing along the costs to consumers, not hiring new employees or cutting back on work hours, he said.

“Businesses do what they have to do to meet their bottom line,” he said. “In our strong opinion, the increase will have a strong negative impact on the individuals (voters) believe they will be helping.”

Not all business groups or businesses agree.

The New Jersey Main Street Alliance, a group of about 1,400 small businesses organized by the liberal advocacy group NJ Citizen Action, supports the minimum wage hike.

“We need to be 100 percent clear: The business groups lining up against a fair minimum wage increase in New Jersey do not represent all of the state’s businesses,” Corinne Horowitz, business representative of the New Jersey Main Street Alliance, said in a written statement.

She said that most businesses in the alliance “already pay their workers a fair wage.”

“They know that boosting the take-home pay for nearly half a million low-wage workers struggling in high-cost New Jersey will help their business, as these workers will spend nearly all of those increased wages locally on essential goods and services,” she said.

Adam Woods, who owns Camden Print Works and is a member of the alliance, said in an interview earlier this year that businesses should not be paying wages that leave their workers in poverty.

An employee making the minimum wage, working 40 hours a week for 52 weeks, earns $15,080 for the year, Federal guidelines set the poverty line at $11,490 for an individual, $15,510 for a two-person household, $19,530 for a three-person household and $23,550 for a four-person household.

“You don’t want your employees to be people who are living in poverty,” Woods said in February. “Poverty is traumatizing. If they are traumatized, they won’t be very good employees.”

He said the “point of a minimum wage” is to set “a floor on how bad it could possibly get,” especially in a state like New Jersey, which “is a high-cost state that is small and surrounded by big expensive cities.”

Many of the workers in the Camden region take the bus from that city into Cherry Hill and other surrounding towns, because that is where the jobs exist. That, he said, is an extra expense many have trouble affording.

“If you’re having to take the bus to Cherry Hill, and you’re spending money to get there and maybe you don’t like the job and they are paying you $7.50 an hour, that is a pretty grim life,” he said.

“It is a no-brainer to me that your minimum wage has to be enough to live on,” he added.

Advocates for low-income workers said the policy brief is flawed and ignores earlier studies that showed that minimum wage increases have little impact on employment.

Gordon MacInnes, president of New Jersey Policy Perspective, the liberal think tank, said the study offered “the usual myths of the business community” regarding the minimum wage.

“Their arguments, when held up to the light of evidence and the experience of real states in last 15 months, are not credible,” he said.

He said the bulk of studies done by economists over the last two decades have shown little impact on employment when states raise the minimum wage – and these studies have not looked at the eight states in which the minimum wage increased in January 2012.

“We know is that the evidence on the ground does not support their contention of what might happen in the future,” he said. “The states that (increased the minimum) are quite varied in terms of size, region, economic complexity, etc. What’s happened now, 15 months later, is that the change in employment among those eight states is almost exactly the same as it is for the other 42 states. That is a pretty good test right there.”

Even if one accepts the NFIB figures, he said, the job loss in a state that employs about 4.6 million people amounts to less than one-tenth of 1 percent a year.

“That is not even a rounding error,” he said.

Phil Kirschner, president of the New Jersey Business and Industry Association, said focusing solely on the number of jobs misses an important part of the debate – that the bulk of the impact is likely to come through cutbacks in hours and not in the elimination of jobs. That is why assuming the minimum wage increase will result in a raise for low-income workers is a mistake, he said. Rather than having someone go from working 40 hours per week at $7.25 to working the same hours at $8.25, you are more likely to see that person working 30 hours at the new rate.

“If you think that minimum wage employers are just going to pay $2,000 more a year – that is not going to happen,” he said. “They will cut people’s hours and cut any benefits they have and cut people’s jobs back to part time.”

Bill Holland, executive director of the New Jersey Working Families Alliance, said he is glad to have the debate.

“Obviously, now that the Legislature has passed the budget, we are going to see a shift toward things that are on the ballot this fall,” he said. “We expect increased attention on issues like the minimum wage, given that the budget that passed Monday will not create the kind of jobs New Jersey needs. It makes a hike in the minimum wage all the more important for working families across the state.”