Aug 08, 2019 - 12:00pm

New York’s Minimum Wage Case Study


Executive Director, Labor Policy

New York City’s new $15/hour minimum wage for “large” (i.e., more than ten employees) employers went into effect this year, and business owners already are feeling the predictable—and predicted—negatives consequences.   

 

A recent article in the Wall Street Journal highlights the effect of the sudden spike in labor costs that the inflated minimum wage unleashed.  Not surprisingly, the increase is forcing employers to find ways to minimize their skyrocketing expenses, which hurts the very workers the misguided policy was supposed to help. The added costs are forcing them “to cut back on shifts and be more stringent about overtime,” according to one employer quoted in the article.

 

Perhaps more noteworthy, the same employer said that she had cancelled plans to open a new location for her restaurant because of the inherent unpredictability of that business, which would leave her “no choice but to cut people at the bottom,” if the business were not profitable.  The president of the Queens Chamber of Commerce similarly reported that since the increase businesses are “cutting their staff. They’re cutting their hours. They’re shutting down. ”

 

As this blog has noted previously, organized labor and its allies started their campaign for a $15 minimum wage as part of a larger organizing campaign against McDonald’s in 2012. That effort blossomed into the union front group Fight for $15’s broader push to enact the $15 minimum wage by ordinance or law in several municipalities and states, New York City being one of them.

 

Unfortunately, those behind the wage increases seem not to appreciate how staggering they really are.  Indeed, the spokesman from the union front group Restaurant Opportunities Centers United, which pushed for New York’s $15/hour wage, blithely dismissed criticism of the increase by suggesting that “there are other factors beyond higher wages that result in unsuccessful businesses, and owners shouldn’t blame the boost for their struggles,” according to the Journal.

 

That’s some serious chutzpah.

 

The reality is that New York City’s minimum wage increase was extraordinary. Just three years ago, the minimum wage there was $9.00/hour, but as part of the supposedly gradual increase, it jumped 22% the next year (2017) to $11.00/hour. In 2018, it went up again to $13.00/hour—another 18% increase—before finally settling at $15.00/hour for the current year and beyond. All told, in just three years, the city's minimum wage has skyrocketed by $6.00/hour, or 67%.   

 

Depending on the type of business, a 67% price increase in what typically is the most expensive part of running an operation, labor, is enough to shutter an enterprise altogether, or at least put a massive strain on the bottom line. Where possible, an employer often will try to offset those operating expenses in the price of their products, but that has its limits. As one business owner put it, “there’s only so much consumers are willing to pay for a burger or a bowl of pasta.”

 

Another way to offset increased labor costs is to decrease them—in other words, cutting hours for employees in one form or another. As the Journal article explains, that means eliminating overtime, reduced hours, fewer jobs created, other operational cuts, and at the extreme end, job losses.  The ones who bear the brunt of those cuts are the employees, something that their supposed advocates routinely fail to appreciate.

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About the Author

About the Author

Sean P. Redmond
Executive Director, Labor Policy

Sean P. Redmond is Executive Director, Labor Policy at the U.S. Chamber of Commerce.