President’s Letter: The Minimum Wage – It’s Complicated

Jennifer Tavares, CEcD, President

Jennifer Tavares, CEcD, President

There’s a lot of talk about the minimum wage right now—locally, and at the state and national levels. We’re hearing it in board rooms, in community meetings, in chatting with non-profit organizations, and at many small businesses. We’re hearing from several Chamber members who have very genuine concerns regarding some of the local and state proposals for drastic minimum wage increases.

Most people agree that all individuals should be paid fairly and justly for the work they spend their lives toiling at. The reality is that the minimum wage needed to support each individual, in their specific living and family situation, varies greatly and depends on a host of circumstances, including: their family size, the kind of house they own or rent, the type of car they drive, their dietary preferences, how much student loan debt they might have — and the list goes on.

I think that most of us want wages to gradually increase, to keep pace with inflation, and for the business and non-profit community to share the fruits of their labor with the people doing the hard work. Micro and small businesses, and non-profits in particular, already need to offer flexible workplaces and competitive benefits packages in order to attract and retain talent; they simply lack the profit margins which would be required to pay each employee the approximately $12,000 per year increase in base pay.

Does that number sound high? Here’s where it came from: $6/hour x 40 hours/week x 52 weeks/year = $12,480. That is the value of the wages alone of the proposed difference in pay between the current minimum wage and the proposed minimum wage. We can assume that all existing employees will demand more pay, meaning an additional $5-12,000 per employee. An employer that has minimum wage or entry level employment must then plan to increase wages for their more experienced and skilled workforce accordingly. It doesn’t take long to realize that for many small businesses and non-profit organizations this would be unaffordable, rather, impossible to bear without cutting jobs.

Contrary to what many minimum or living wage advocates think, the challenge with meeting the wage increases proposed by local and state governments is that there is not an endless stream of new revenue, or customer price increases, to substantiate a greater than 50% increase in minimum and entry-level wages over the course of five years. Additionally, local proposals would implement such increases immediately, vs. phasing them in between 2016 – 2021 as proposed by the New York State. Should Tompkins County have a higher mandatory minimum wage than the rest of New York State and the nation? Given the numerous reasons why it is already more expensive to do business here, to build projects here, and to employ people here, this is an important question to consider.

There are valid market reasons why some jobs are valued differently than others. Currently, that is recognized by entry-level fast food wages at about $8.75 per hour. These jobs require some training, but are attainable to almost anyone at any education level, while entry-level manufacturing jobs might range from $10-15 per hour. These jobs require more education, more basic job skills, and a higher investment in training by the employer.

When the government changes the market so drastically and suddenly to value the entry-level jobs at $15 per hour, we must explore the unintended consequences which will no doubt present themselves elsewhere in the market. And, more importantly, if many employers struggle to find employees now, what will it be like in a new market with a $15 minimum wage?

Steps must be taken to ensure that wage growth keeps pace with the rising cost of living, but these steps must be taken gradually. More minimum wage advocates should speak with and listen to actual employers, non-profit organization leaders, and small business owners who are currently struggling to retain and compensate the employees they already have. I fear that the outcome of efforts to increase the minimum wage will yield less, not more quality jobs. Hard choices will be made, and in the end, they may look a lot more like unintended consequences than desired outcomes.

October, 2015