Governor Murphy a $15 minimum wage is not good for the people of New Jersey

Governor Murphy has not hidden his desire to increase the minimum wage in New Jersey to $15 per hour.  In response to a bill introduced by Assemblywoman Shavonda Sumter to increase the minimum wage Murphy said “I congratulate and thank Assemblywoman Sumter and her Assembly colleagues on their efforts to ensure a fair and livable wage for all working New Jerseyans. We know what will happen when we put the minimum wage on a path to $15 an hour – workers will have more money to raise their quality of life and secure a better future for their families and employers will see less turnover.  Ensuring a fair wage is about restoring basic fairness to our economy, and about ensuring that every working family can be part of growing our economy. I look forward to working with Assemblywoman Sumter and her cosponsors, Assemblywoman Mosquera and Assemblymen Egan and Wimberly, and all legislators, to pass an increase in the minimum wage by the end of this year.”  But do economists agree with Murphy?

Murphy

James Sherk, a Research Fellow in Labor Economics at The Heritage Foundation said businesses would respond to higher labor costs by reducing employment of affected workers by over one-sixth, thus eliminating approximately seven million full time equivalent jobs by 2021.  Sherk says key take aways from a study on increasing the minimum wage are 1.  Most minimum wage employers are small businesses. Their profit margins are too small to absorb large wage increase.  2.  Economists find that businesses pass minimum-wage costs on to their customers by raising prices.  Consumers, not business owners bear the burden.  3.  The poor and middle class spend more on goods produced by minimum wage workers than the wealthy do  Consequently minimum wages raise prices on the poor.  Sherk also stated that a single mother working full time and earning the federal minimum wage of $7.25 an hour would be over $260 a month worse off if the minimum wage were raised to $10.10: “While her market income rises by $494, she loses $71 in EITC [earned income tax credit] refunds, pays $37 more in payroll taxes and $45 more in state income taxes. She also loses $88 in food stamp benefits and $528 in child-care subsidies.”

A University of Washington study on Seattle’s $15 minimum wage  found “Some employers have not been able to afford the increased minimums. They’ve cut their payrolls, put off new hiring, reduced hours or let workers go.” According to the study, “the average low-wage worker in the city lost $125 a month because of the hike in the minimum.”

A study from by the Federal Reserve Bank of Cleveland found that although low-income workers see wage increases when the minimum wage is raised, “their hours and employment decline, and the combined effect of these changes is a decline in earned income.  Minimum wages increase the proportion of families that are poor or near-poor.”

George Reisman, PhD, Professor of Economics at Pepperdine University said “The higher wages are, the higher costs of production are. The higher costs of production are, the higher prices are. The higher prices are, the smaller the quantities of goods and services demanded and the number of workers employed in producing them.”

Matthew Rousu, PhD, Associate Professor of Economics at Susquehanna University, wrote in a 2014 article that the federal minimum wage “has a devastating impact on teenagers” because firms will not pay many young workers with no skills or experience minimum wage, let alone a higher wage.

James Dorn, PhD, Senior Fellow at the Cato Institute, stated that a 10% increase in the minimum wage “leads to a 1 to 3 percent decrease in employment of low-skilled workers” in the short term, and “to a larger decrease in the long run.”

Seth Zimmerman, PhD, Assistant Professor of Economics at the University of Chicago, stated: “minimum wage laws can lead to labor market rigidities that make it more difficult for people to move up the economic ladder. These rigidities can decrease relative mobility and can decrease absolute upward mobility as well.

The Washington Post wrote that as minimum wage campaigns gain traction around the country, “Many restaurant chains are already at work looking for ingenious ways to take humans out of the picture, threatening workers in an industry that employs 2.4 million wait staffers, nearly 3 million cooks and food preparers and many of the nation’s 3.3 million cashiers.”

Per Bylund, PhD, Research Professor at Baylor University said the federal minimum wage “disrupts the balance of the market and prohibits the creation of new jobs.” Bylund stated that the free market should determine wages based on the value of work produced so employers can hire the needed number of workers at wage levels that make sense for their businesses.

Mark J. Perry, PhD, of the American Enterprise Institute said government-mandated minimum wages “are always arbitrary and almost never based on any sound economic/cost-benefit analysis. In contrast market-determined wages reflect supply and demand conditions that are specific to local market conditions and vary widely by geographic region and by industry.” Perry said market-determined wages result in more employment opportunities for unskilled workers, increased profits for companies, and lower prices for the consumer.

According to a 2013 study by Boston College economists, increasing the minimum wage leads to reduced employment which leads to an increase in thefts, drug sales, and violent crime. Their results indicate that “crime will increase by 1.9 percentage points among 14-30 year-olds as the minimum wage increases”.

From my perspective skilled workers are already employed in roles paying $15 per hour or more.  A raise in the minimum wage will discourage those in minimum wage jobs to further their education and increase their skills making them more valuable to employers and able to command a higher wage.  Increasing the minimum wage will decrease small business growth and more employers will employ undocumented illegal workers as a cost savings.

Governor Murphy put the people and businesses of New Jersey before partisan politics, do what is right for our state and reject a $15 minimum wage.

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