New Jersey Governor Murphy just doesn’t get it. Perhaps his 23-year career at Goldman Sachs didn’t prepare him for the struggles of small businesses and working class New Jerseyans. In response to 1,311 layoffs expected in the next 2-months with 826 expected before January 1st Murphy responded that we must “recommit to taking immediate action to raise New Jersey’s minimum wage and put it on a path to $15 an hour”.
As reported in the Patch yesterday New Jersey will have at least 1,311 layoffs within the next two months with 826 coming by January 1, 2019. Much of the layoffs will happen in retail, where New Jersey has had a number of store closings this year and in healthcare. This is in addition to the 700 to 800 jobs that will leave New Jersey as Honeywell transitions it’s corporate headquarters to North Carolina.
In response to a report from The United Way that said more than 1 million families in New Jersey are “income-constrained” Murphy said this “proves beyond any doubt” the need for efforts to both grow the economy and make it more fair. “But, we must also recommit to taking immediate action to raise New Jersey’s minimum wage and put it on a path to $15 an hour. The Legislature has given its strong support in the past to raising the wage. I have never wavered in my commitment. We must make this a legislative priority and work to enact it before the end of the upcoming holidays”
While business are leaving New Jersey, layoffs are taking place and businesses and families are struggling Murphy appears to be doubling down on his commitment to a $15 minimum wage rather then working to retain and help the very businesses in New Jersey that create and provide jobs.
Previously Murphy has stated “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”. What Murphy apparently does not understand is that companies are already leaving the state. A $15 minimum wage will only escalate the flight of job creators from New Jersey and layoffs.
In a prior blog post I cited study after study showing how economists disagree with Murphy and dramatically increasing the minimum wage will hurt the state’s economy. The studies also show that a significant raise in the minimum wage will hurt the people it is intended to help.
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 dramatic 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 to $15 per hour will decrease small business growth and more employers will employ undocumented illegal workers as a cost savings.
New Jersey is in a somewhat unique position in the number of seasonal employees along the Jersey Shore. This includes everyone from those who clean motel rooms, serve food along the boardwalk and operate rides. Many of these employees are students with summer jobs down the shore. Does Murphy believe a kid with a summer job serving ice cream on the boardwalk should earn $15 an hour?
On a larger scale we are already seeing fast food giants like McDonalds move to automated kiosks (McDonalds has said they will automate 1,000 restaurants per quarter over the next two years with self ordering kiosks). One only has to go to a big box retailer or chain grocery store and look at how many self-service checkout lines are available vs. cashiers. Technology is already killing entry level minimum wage jobs. I anticipate that a raise in the minimum wage to $15 per hour will rapidly continue that trend.
I believe that skilled workers in New Jersey are already earning $15 per hour or more. We should be encouraging those in minimum wage jobs to increase their education and skills to make them more valuable to employers and command higher wage not put the burden of higher wages for entry level jobs on employers and decrease business growth.
New Jersey needs a Governor who gets it and will spur economic growth in New Jersey. Clearly Murphy is not that Governor.
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