This brief report attempts to quantify the potential economic impact implementation of S6413 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.
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
of potential employment and productioneffects resulting from S6413
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.
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
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
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:
National Analysis,” Industrial and Labor Relations Review, Vol. 57, No. 2, January 2004.