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Tightening job market impacting minimum wage hike

Downtown parking lot attendant Dennis Young is all for Gov. Andrew M. Cuomo’s plan to boost the state’s minimum wage to $10.50 an hour by the end of next year.

The extra $70 or so a week would go a long way toward paying his family’s bills, Young told reporters last week, when Cuomo stopped in Buffalo to promote his push to raise the minimum wage.

Cuomo said the recovery from the Great Recession has been great for the nation’s millionaires and billionaires, but sluggish wage growth has been making it tough on most workers, especially the lowest-paid ones.

“You’re seeing a polarization of income that we have not seen before,” Cuomo said. “Very few people are doing very well, while the middle class is struggling and the working class is struggling in a way we haven’t seen.”

A higher minimum wage, Cuomo figures, would lift 100,000 New Yorkers out of poverty and give the state’s economy a $3 billion shot in the arm, since low-wage workers are likely to spend any pay raise they get.

“They will spend it fast, and that will stimulate the economy,” Cuomo said. “It will be good for business, by and large.”

But Cuomo’s plan didn’t sit too well with Bob Confer, vice president of Confer Plastics in North Tonawanda. None of the 190 employees at the pool and spa products manufacturer make the minimum wage, now $8.75 an hour, but Confer said raising the rate would force him to do the same for his workers.

“We like to have a healthy gap between our starting wage and minimum wage,” Confer said.

The company already boosted its starting wage by 50 cents an hour to $10.50 this year, when the state’s minimum wage rose to $8.75 from $8. The state’s minimum wage is set to rise to $9 at the end of this year, and Confer said his company’s starting salary will likely get another bump upward.

Confer also worries that the higher wages will make it harder for his company to keep up with competitors in other states, especially those where the minimum wage still is the federally mandated $7.25 an hour. Confer already figures that his costs are about 4 percent higher – roughly $700,000 a year – than they would be elsewhere because of New York’s higher taxes and stiffer regulations. Raising the minimum wage would only make that gap wider, he said.

If Cuomo’s plan gets through the state Legislature – and it likely will face tough opposition in the state Senate – Confer said he could see his company’s starting wage rising to $12 or $13 an hour. And if the company’s workers at the lowest end of the wage scale are getting a raise, he figures all of the firm’s employees would be looking for an increase. That could drive up the company’s wage costs by about $790,000 a year, he figures.

“I like to have a substantial gap because it’s a pretty competitive job market,” Confer said.

In fact, that competitive job market already is starting to push the minimum wage higher for hundreds of thousands of workers. Walmart said last month it would bump up the pay for a half million of its lowest-paid employees to $9 an hour.

Less than a week later, TJX Cos., which owns T.J. Maxx, Marshalls and other department store chains, said it would boost its starting pay to $9 an hour in June, and then to $10 per hour in 2016 for workers who have been with the company for at least six months. Apparel retailer Gap Inc. raised the hourly pay for its U.S. employees to $9 last June and will bump it up to $10 this coming June.

Why now?

A couple of factors are in play here. For starters, the lowest-paid workers are slowly starting to get a little leverage on their employers after basically being powerless since the recession hit in 2007.

The local unemployment rate, which was 8.1 percent in December 2012, had come down all the way to 5.7 percent by the end of last year. Job growth in January was a solid 1.2 percent – the best gain in nearly three years.

The local job market is getting to the point where workers are starting to see more opportunities to change jobs – and they’re no longer too afraid to do it out of fear that their new employer will eliminate their position in a cutback not long after they start.

When workers start to be more willing to quit and move on to another job, that puts pressure on employers to raise wages to keep their workers from jumping ship.

“Cost pressures have increased, including more widespread indications of rising wages,” the Federal Reserve Bank of New York said last week in the Beige Book that outlines economic conditions ahead of the upcoming Fed Board of Governor’s meeting.

That’s a change, because worker pay through the end of last year has been slow to climb during the recovery, even with the uptick in hiring. Wages across the country still are growing more slowly than they were heading into the recession.

Wages and benefits climbed at a 2.2 percent annual pace in the fourth quarter of 2014, compared with a 3.5 percent advance in the 12 months that ended in March 2007, before the recession hit, according to the Labor Department’s employment cost index.

There’s also a political element in the minimum wage issue, especially for high-profile employers like Walmart, which are constantly criticized for paying so many of its employees so little that they have to be on food stamps and Medicaid.

New York was one of 20 states that increased their minimum wages at the beginning of January, according to the National Conference of State Legislatures. In nine of those states, the minimum wage increased because it is indexed to inflation.

Washington state currently has the highest minimum wage among states with an hourly rate of $9.47.

Entry jobs threatened

While Cuomo argues that raising the minimum wage will be good for the economy because the people getting the higher pay are likely to spend it, businesses contend that it will hurt the economy by making companies less likely to fill entry level jobs.

Economists at the Federal Reserve Bank of Chicago in 2011 found that a $1 increase in the minimum wage increased incomes in households with adult minimum wage workers by about $250 per quarter. Those households also increased their spending by about $700 per quarter during the ensuing 12 months, accompanied by a substantial increase in debt, mainly in the form of car loans.

But a 2012 study, published in a Cornell University journal, found that the proposed hike could hit workers without a high school diploma hard. Employment by workers without a high school diploma dropped by about 21 percent after New York raised its minimum wage from 2004 to 2006.

So there’s no question Cuomo’s proposal would create ripples in the economy. But the free market – fueled by a tighter job market – might steal some of his thunder.