Minimum Wage Increase—Home Rule or Not—Could Affect Labor Market

Minimum Wage Increase—Home Rule or Not—Could Affect Labor Market

Minimum Wage Increase—Home Rule or Not—Could Affect Labor Market
September 25, 2014

While New York City Mayor Bill de Blasio wants state lawmakers to pass a home rule message allowing him to raise taxes, another home rule measure affecting municipalities all across the state could be granted by the end of the legislative session.

The state Senate Democratic Conference introduced legislation on Tuesday that would bump the minimum wage to $9 per hour at the end of 2014. It also would allow local municipalities to go above what the state sets as its baseline. That measure, which Democrats billed as a positive for areas with higher costs of living like New York City, has some economists cautiously optimistic.

“It would reflect the cost of living and things like that,” said Robert Smith, an economics professor and labor economist at Cornell University, who called the measure reasonable. “If it costs a lot more to live in New York City than it does in Elmira, the minimum wage could be varied to reflect that.”

Democratic Leader Sen. Andrea Stewart Cousins announced the bill alongside multiple colleagues from New York City, who advocated for a higher wage for similar reasons. State Sen. Jose Peralta noted that an $8 minimum wage in the city falls well short of what $8 per hour can buy in upstate New York.

But while the proposal would seemingly help bridge cost-of-living disparities, Smith warned that the provision could still have an effect on the job market. The proposed law would allow any individual municipality to set its own minimum wage, meaning a city could have a different minimum wage than its county or the surrounding towns. Smith said that could provide an incentive for businesses to hop municipal lines.

“If Ithaca had a $15 minimum wage and outside of Ithaca the state minimum wage of whatever it is was a lot lower than that, the concern would be that a fast food place would move just across the jurisdictional line,” he said. “So you might have a lot more job loss than you would otherwise have if the minimum wage were the same in each jurisdiction.”

Christopher Flinn, a New York University professor and labor economist, said that such disparities could have significant effects. He cited empirical studies in places like Kansas City, which straddles the Kansas-Missouri state lines, but noted that they only track small changes in the minimum wage.

“When you start getting up to $15 an hour, you’re affecting a huge proportion of workers, so essentially a lot of the empirical evidence that these studies cite are not valid anymore,” he said. “Any reasonable labor economist would agree that once you get up to a minimum wage impacting maybe a third of employees, you have general equilibrium effects, which are really going to affect the demand and business location decisions and are almost surely going to result in a relatively marked loss in employment. And that’s going to be exacerbated if you’re talking about really small areas.”

While $15 per hour might be the extreme, Flinn said researchers don’t often find that a minimum wage has a significant effect on employment because mandated levels have been “incredibly low.” A jump to $10.10 per hour, which has been proposed on the federal level, could cause more of a rumble. Flinn said that given wage rates have stagnated for production workers, the hit to employers would be even greater.

At Tuesday’s news conference announcing the Democrats’ proposal, state Sen. Adriano Espaillat noted that if the 1968 minimum wage was indexed, today’s wage would be more than $10 per hour. Peralta said that a single worker earning the minimum wage of the 1960s and ’70s could support a family of three, though today, it puts families at the poverty line.

Espaillat also argued that raising the minimum wage would be a positive for businesses. He saying that minimum wage earners wouldn’t buy lavish items, such as a Caribbean vacation, with their new wages, but would instead spend the money at local businesses.

“They’re going to go grocery shopping, they’re going to get a new pair of shoes, they’re going to support the small businesses that are the biggest employers in our country,” he said.

The proposal would also index the minimum wage rate to inflation at the end of each year and repeal a 2013 tax law that offered a minimum wage reimbursement credit to businesses that hire workers between the ages of 16 and 19. For tip workers in the food service industry, the minimum wage would increase immediately to $5.50 per hour and $6.20 at year’s end.

Last year, the state approved a phased in minimum wage increase that would bring the rate to $9 per hour by the end of 2015. It currently sits at $8 per hour and would jump to $8.75 at the end of this year. A spokesperson for the Senate Republican Conference said n that it has no interest in revisiting the law.

Matthew Hamilton