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NFIB-NY Minimum Wage Study - 2012

NFIB-NY Minimum Wage Study - 2012

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Published by: Jon Campbell on Dec 04, 2012
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Michael J. ChowNFIB Research FoundationWashington, DCNovember 1, 2012
Economic Effects of a New York Minimum Wage Increase:An Econometric Scoring of S6413
This report analyzes the potential economic impact of implementing the changes to NewYork minimum wage laws contained in S6413 on private sector employment and production.S6413, originally introduced on February 6, 2012 by Senator Jeffrey D. Klein would (a) raise theminimum wage in New York to $8.50 beginning in 2013 and (b) provide for future increases inthe minimum wage dependent upon cost of living adjustments. Billed as a measure that wouldhelp reduce income inequality, the long-run effect of the legislation would be the destruction of  jobs and economic production in the state of New York. Depending upon the rate of inflation infuture years, enacting legislation containing the essence of S6413 could result in nearly 22,000lost jobs in New York over a ten-year period and a reduction in real output of $2.5 billion. Morethan 70 percent of the lost jobs would be jobs from the small business sector of the economy.
 
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Introduction
 
Employers in all fifty states are required to offer workers a minimum wage in exchange for theirlabor. The primary federal statute in the area of minimum wages is the Fair Labor Standards Act(FLSA) of 1938 which, as amended, establishes a basic minimum wage that must be paid tocovered workers. The current federal minimum wage is $7.25 per hour. States are permitted toestablish their own minimum wages which have the potential to replace the federal rate as thebasic minimum wage, provided that the state minimum wage established exceeds the federal rate.The effective minimum wage in the state of New York is currently $7.25, equal to the federalrate (
Table 1
).
Table 1: Historical Effective Minimum Wage Rates for New YorkYear Minimum Wage Year Minimum Wage
1972 $1.85 1993 $4.251973 $1.85 1994 $4.251974 $1.85 1995 $4.251975 $1.85 1996 $4.251976 $2.30 1997 $4.251977 $2.30 1998 $4.251978 $2.30 1999 $4.251979 $2.90 2000 $4.251980 $3.10 2001 $5.151981 $3.35 2002 $5.151982 $3.35 2003 $5.151983 $3.35 2004 $5.151984 $3.35 2005 $6.001985 $3.35 2006 $6.751986 $3.35 2007 $7.151987 $3.35 2008 $7.151988 $3.35 2009 $7.151989 $3.35 2010 $7.251990 $3.35 2011 $7.251991 $3.80 2012 $7.251992 $4.25 ---- -----Source: Department of LaborDespite multiple recent increases in the state minimum wage (the state minimum wagehas increased 40.8 percent over the past decade), state legislators continue to push for additionalincreases. The most recent attempt takes the form of S6413, a bill originally introduced onFebruary 6, 2012 by Senator Jeffrey D. Klein. If passed, the bill would raise the minimum wageto $8.50 in 2013. Future increases to the state minimum wage rate would be guaranteed vis-à-visindexation to cost of living increases on an annual basis.
 
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This brief report attempts to quantify the potential economic impact implementation oS6413 might have on New York small businesses and their employees by using the BusinessSize Insight Module (BSIM). The BSIM is a dynamic, multi-region model based on theRegional Economic Models, Inc. (REMI) structural economic forecasting and policy analysismodel which integrates input-output, computable general equilibrium, econometric, andeconomic geography methodologies. It has the unique ability to forecast the economic impact of public policy and proposed legislation on different categories of U.S. businesses differentiated bysize of firm. Forecast variables include levels of private sector employment and real output. Bycomparing simulation results for scenarios which include proposed or yet-to-be-implementedpolicy c
hanges with the model’s baseline forecast, the BSIM is able to obtain estimates of how
these policy changes might impact employer firms and their workers.
Description of New Employer Costs Under S6413
Minimum wage increases raise the cost of labor for employers.
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S6413 is no exception to thisrule. Increases to the New York minimum wage law constitute a direct increase in employercosts. Intended to take effect on January 1, 2013, the bill would increase the minimum wage to$8.50 with annual adjustments in future years linked to increases in the cost of living asmeasured by the Consumer Price Index for all urban consumers.The precise amount of additional wages employers must pay under S6413 is uncertainsince future wage increases depend upon future (unknown) cost of living adjustments (COLA).Due to this uncertainty, the analysis in this report relies on a set of three different COLA pathswhich, with the assistance of the BSIM, provide a
range
of potential employment and productioneffects resulting from S6413
’s implementation.
The three paths chosen for this analysis were apath with no increases in the cost of living in future years, a path with two percent annualincreases in the cost of living, and a path with four percent annual increases in the cost of living.With historical rates of increases in the cost of living in mind, these three paths can reasonablybe expected to include within their range the actual, realized path of future cost of livingadjustments.
Table 2
presents the hypothetical paths the New York minimum wage would takeunder these three scenarios assuming that S6413 is implemented in 2013.Larger increases in cost of living adjustments translate to larger increases from the statusquo minimum wage, leading to larger additional employer costs in future years. The additionalper-employee wage burdens shouldered by employers in future years is presented in
Table 3
inpercentage terms. Assuming zero percentage changes to the cost of living in future years, theincrease of the minimum wage to $8.50 per hour still represents a 17.2 percent increase in the
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Good overviews of the literature on the minimum wage can be found in:
Brown, Charles, Curtis Gilroy, and Andrew Cohen, “The Effect of the Minimum Wage on Employment andUnemployment: A Survey,” NBER Working Paper No.
846, January 1982;
 Neumark, David and William Wascher, “Minimum Wages, Labor Market Institutions, and Youth Employment:
A Cross-
 National Analysis,” Industrial and Labor Relations Review, Vol. 57, No. 2, January 2004.
 

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