Explainer: How New Jersey’s Minimum Wage Is Tied to Inflation Data

John Reitmeyer | September 6, 2016 | Explainer
Despite the governor’s veto of a minimum-wage hike, workers could still get a raise because the mimimum wage here is linked to the federal Consumer Price Index

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After Gov. Chris Christie last week rejected a Democratic bill to boost New Jersey’s hourly minimum wage by nearly $2 next year on the way to an eventual goal of $15, Democratic legislative leaders say they’re looking to take the issue directly to voters.

But even as that effort plays out over the coming months, beginning with a committee hearing scheduled for later this week, the state’s minimum-wage workers could still see their paychecks rise next year thanks to the state’s current minimum-wage rules.

Under changes approved by voters in 2013, New Jersey’s minimum wage is bumped up automatically at the beginning of each year following a rise in the Consumer Price Index. The latest official report on the CPI is due out from the federal government in a little over a week. New data that tracks inflation over the last year will help determine whether New Jersey’s minimum wage will increase in 2017.

What is the CPI? The Consumer Price Index is a tool the federal government uses to measure inflation. It keeps tabs on changes in the average prices that are paid over time for a range of goods and services by the typical household. Things like food, clothing, housing, and college tuition are all tracked as part of CPI analysis. The figures are seasonally adjusted, meaning the analysis takes into account changes that can be attributed to things like weather rather than underlying economic conditions.

Changes in the CPI are taken into account by government leaders as they set policies affecting things like interest rates and Social Security benefits.

Why state’s minimum wage is tied to the CPI: After Gov. Christie rejected lawmakers’ efforts to increase New Jersey’s minimum wage in 2013, the legislation’s sponsors gathered enough votes from their colleagues to go around Christie altogether and put the issue before voters in the form of a proposed constitutional amendment. Under the ballot question that was ultimately passed by voters in November 2013, language was added to the state constitution that called for New Jersey’s then-minimum wage of $7.25 to be increased by $1 at the start of 2014.

To prevent a future fight with the governor over each subsequent increase, the rewritten constitution also established that the state’s minimum wage would be revisited each year, with mandatory increases scheduled following years in which inflation had occurred. Specifically, the state Department of Labor and Workforce Development must perform an assessment of changes in the CPI each September based on the latest 12-month figures collected by the federal Bureau of Labor Statistics. The rate is adjusted upward on January 1 following any year where inflation increased.

After a slight rise in inflation was tracked from 2013 to 2014, the hourly rate went from $8.25 to $8.38 at the start of 2015. The federal CPI figures released last September showed no rise in inflation from 2014 to 2015, keeping the minimum wage at the same level in New Jersey in 2016.

But another adjustment could be possible for New Jersey’s minimum-wage workers in 2017. As of July 2016, inflation over the prior 12 months was measured by the federal government at just under 1 percent. Some economists predict that inflation will nudge a little higher thanks to rising energy costs. The latest official CPI figures are scheduled to be released on September 16, and the annual assessment by state labor officials is expected soon after.

Minimum-wage legislation: Amid a broader, national push to establish a $15 minimum wage to fight back against growing income inequality, earlier this year the leaders of New Jersey’s Democratic-controlled Legislature advanced a bill that would bump up the state’s minimum wage to $10.10 at the beginning of 2017. Under the same legislation, the minimum wage would eventually rise to over $15 by 2021. From there, future increases would be tied to any subsequent rise in the CPI, just as the state constitution currently requires.

The lawmakers who sponsored the $15 minimum-wage bill said that phasing in the increase over several years offered a responsible way to ensure wages for the lowest-paid workers keep pace with rising corporate profits and executive bonuses.

But Christie, citing concerns that a $15 hourly wage would negatively impact the state’s business community and broader economy, vetoed the measure last week. His action drew immediate praise from business lobbying groups who had opposed the minimum-wage legislation, saying it could force companies to up their prices or slash employee rolls.

Another minimum-wage ballot question expected in 2017: The response to Christie’s veto by the legislative leaders was swift, with both Senate President Stephen Sweeney (D-Gloucester) and Assembly Speaker Vince Prieto (D-Hudson) saying they will move to put the issue before voters once again. The first vote on the proposed constitutional amendment is scheduled to be held on Thursday.

The proposed constitutional amendment is expected to include all of the elements of the minimum-wage legislation that Christie just rejected, including the initial jump to $10.10 and the phase-in to $15. And it’s now on target to go before voters in November 2017. Labor unions and other advocates for low-wage workers are expected to spend big money to support the ballot question in the run up to next year’s referendum. The November election could also help determine the political future of Sweeney, who is expected to be a 2017 gubernatorial candidate.

While there was widespread support among voters for the $1 minimum-wage increase that went into effect in 2014 — the ballot question won by a margin of 61 percent to 38 percent – the new effort will test just how much sympathy they still have for minimum-wage workers. The hourly rate would increase by nearly 80 percent through 2021, and then still be subject to future increases based on changes in the CPI.