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Dramatic increase in minimum wage is leading state into uncharted economic territory

We are venturing into the unknown as New York State prepares to raise the minimum wage for all fast-food workers to $15 an hour by mid-2021. The action made by the Cuomo administration without the involvement of the State Legislature is rife with potential problems and advantages.

Indeed, some of the consequences may be both positive and negative, not to mention entirely predictable.

One such development is already in the wind and gained attention within hours of the action last week by New York’s Wage Board. McDonald’s is testing an automated ordering system that will, presumably, eliminate many if not all of the counter jobs at those restaurants.

As humans become more expensive and technology advances, employers will move to lower their costs. It’s a normal and even necessary business decision, part of the competitive forces that make capitalism work. If McDonald’s didn’t do it, someone else would, and gain potential advantages in pricing and convenience. The state is changing the market and business must respond.

In that regard, the Wage Board’s decision will do no more than hasten what business competition would eventually have produced, anyway, but make no mistake: the gradual but dramatic increase in minimum wages for these workers is all but certain to decrease the number of low-skilled workers needed. Bottom line: Fewer workers will be paid more and business will become more efficient.

As it stands, the state’s minimum wage of $8.75 an hour – rising to $9 on Dec. 31 – is not enough to sustain a family without government assistance. Many minimum-wage workers in the state require help feeding their families, covering the rent or paying for health care. To the extent that those industries are pushing their employees into the arms of already overburdened taxpayers, the increased income of the remaining workers could be a public benefit.

Still, it is axiomatic that jobs requiring few skills will be lower paying. That, too, is part of the competitive structure of the economy, and it feeds the desire of low-paid workers to improve their skills and, with them, their incomes. The large increase endorsed last week risks tampering with those generally desirable market forces.

The narrow focus of the increase also carries consequences. Some owners of fast-food franchises worry about maintaining their customer bases, even as automation moves in. Harry Schatmeyer sold his single McDonald’s restaurant in New Jersey eight years ago and used the money as a down payment on five locations in Amherst and the Tonawandas. It was a big risk that he now worries will not pay off.

Had the wage increase had been across the board instead of just targeting his industry, Schatmeyer said, it could have increased sales by putting additional dollars in the pockets of his customers. That didn’t happen. “Things could turn upside down very quickly,” he said.

Part of the problem for restaurant owners in areas such as Buffalo is the disparity in the costs of doing business here and in New York City. Because rents are already so high downstate, the cost of workers comprises a smaller percentage of total business expenses and could be more easily absorbed. In Buffalo, wages and benefits comprise a larger share of expenses and so will have a greater impact on any restaurant’s bottom line. It will hurt more.

It seems unlikely that this will be the end of the matter. Pressure will inevitably increase to raise the rate for other minimum-wage workers. Indeed, it is strange to push it up in just one industry, and makes sense mainly as a political tool to raise the minimum across the board.

How wise a move that is remains, for the moment, a mystery. This is something new. Previous increases in the minimum wage have routinely produced howls of protest from businesses and their supporters, but in the end never seemed to produce much downside. The increased costs have been absorbed and business continued, more or less the same.

Will that be true when the increase is so dramatic? We’re going to find out.