Sunday, March 5, 2017

STUDY: Positive Impact Of Raising New York's Minimum Wage To $15 An Hour

A year ago a study by UC Berkeley of New York state's plan to gradually raise its minimum wage from its current $9 an hour to $15 an hour by 2021 determined that the raise would result in a mostly positive outcome. With the raise signed into law by Governor Cuomo, we're going to see the effects over the next few years. So I hope the report is right. Key findings include:

  • As Cooper (2016) reports, increasing the state minimum wage from $9 to $15 will increase earnings for 3.16 million workers, or 36.6 percent of the statewide workforce. 
  • As Cooper (2016) also reports, among those getting raises, annual pay will increase 23.4 percent, or $4,900 (in 2015 dollars) on average. These estimates include a ripple effect in which some workers who already earn $15 will also receive an increase. 
  • Three industries account for nearly half of the private sector workers getting increases: retail trade (17.6 percent), health care and social assistance (18 percent), and restaurants (13.5 percent). 
  • 79.6 percent of workers in the restaurant industry in the private sector will receive a wage increase, compared to 19.6 percent in finance, insurance and real estate
Effects on businesses and consumers by mid-2021 
  • Payroll cost increases will average 3.2 percent over the entire for-profit economy. This increase is much smaller than the minimum wage increase because many businesses already pay over $15 and many workers who will get pay increases are already paid over $9, the current minimum wage. 
  • Employee turnover reductions, automation, and increases in worker productivity will offset some of these payroll cost increases. 
  • Businesses could absorb the remaining payroll cost increases by increasing prices slightly—by 0.14 percent per year over the phase-in period. This price increase is well below annual inflation of nearly 2 percent over the past five years. 
  • Price increases will be much smaller than labor cost increases because labor costs average about onefourth of operating costs. 
  • The consumers who would pay these increased prices range across the entire income distribution. 
Net effect on New York employment by mid-2021 
  • Our estimate projects a cumulative net gain in employment of 3,200 jobs by mid-2021, which corresponds to 0.04 percent of projected 2021 employment. On an annual basis, the net effect corresponds to a gain of 0.01 percent in employment in New York State. By comparison, New York State employment growth has averaged 2.0 percent per year over the past five years. 
  • Our robustness tests support our main finding. The net employment effects remain very small, especially in relation to the 3.16 million low-paid workers getting a 23.4 percent boost in earnings, and the overall size of the New York State job market. 

So there's a modest net gain in jobs from raising the minimum wage to $15 an hour, but most importantly there isn't a net loss, as is often touted by critics of the raise. They reason that making labor more expensive will get you less labor. It seems like common sense, until you factor in the fact that people making more money will spend more money, increasing sales for businesses, and that will create more jobs.

I'm not sure a $15 an hour minimum wage will work nationwide, but in expensive states like New York, and especially New York City, where people often pay half of their income on rent, it is desperately needed.

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