New York’s minimum wage has been increasing steadily since 2013, when an agreement in the state budget increased the minimum 24 percent to $9 at the end of 2015. In September of that year, Gov. Andrew Cuomo took executive action to increase the minimum wage for fast-food workers to $15 an hour by July 2021 (more than double the 2013 rate). Wages paid to fast-food workers increases to $13.75 at the end of the year.
A comprehensive increase in the minimum wage was passed by the state Legislature as part of the 2016-17 budget, approving a phased increase to $15 an hour in most of downstate and $12.50 an hour upstate. Rates are higher downstate with distinctions made for location and firm size. (See here for the very detailed wage order.)
Winners and losers
Economists are nearly unanimous in observing that a minimum wage hike has both winners and losers among the groups it is intended to help. This is typical for public policy—only rarely can we make substantive changes that help all and hurt none. On the left, we’re led to believe that a minimum wage rise will significantly improve the well-being of the poor and that employment could actually increase as a consequence. The right declares that jobs for the most disadvantaged will disappear and that the increase might trigger a recession.
Policy must balance the two perspectives. A minimum wage set too high will price some workers out of a job. A minimum wage of $25 an hour, for example, will surely accelerate the adoption of “robot” clerks from self-checkout stations at Home Depot or Wegmans to ordering kiosks at McDonalds or Panera. Eliminate the minimum wage, however, and we open the doors to the exploitation of workers who cannot refuse a cut in pay.
The effects of a minimum wage change are also difficult to measure. Researchers must compare a “post-policy” reality with what might haveoccurred instead. Economists don’t have the luxury of setting up an experiment with two communities that are identical except for the minimum wage. The best we can do is to compare conditions in the same region before and after the change or compare different regions during the same time period. That labor markets vary by time and place makes any conclusions subject to criticism.
The best study to date is one in Seattle, courtesy of unprecedented cooperation between University of Washington researchers and the state’s Department of Labor. Instead of relying on changes in aggregate employment or average wages, the Washington study is able to track the impact on individual workers. The researchers concluded that experienced workers did better—their pay increased while their hours didn’t change. The least-experienced workers found fewer opportunities after the wage increased, thus were worse off. (Listen to a discussion of the study and its findings here. )
Researchers’ key challenge in Seattle has been to discern the minimum wage impact within a booming labor market. In a period of economic expansion when labor is scarce (reflected in a relatively low unemployment rate), a wage increase will have a smaller impact on hours worked and total payroll. In a period of recession, the most vulnerable workers are more likely to lose hours. The Seattle findings are consistent with this expectation.
NY/PA border counties
The findings of a new study of the minimum wage increase in New York by the Federal Reserve Bank of New York was just released. The Fed’s researchers compared wages and hours in adjacent New York and Pennsylvania counties from 2010 through 2018, a period that overlaps significant minimum wage increases in New York while the Pennsylvania rate remained at the national level. The study looked workers in the leisure and hospitality and retail sectors separately.
The study concluded that average weekly earnings grew in New York without a loss in employment in leisure and hospitality. Consistent with national trends, the retail sectors in both states suffered substantial, but comparable, loss in employment, while weekly earnings in New York outpaced those in Pennsylvania.
Not the end of the story
While this study makes a useful contribution to the minimum wage debate, a few caveats are in order. My colleague E.J. McMahon at the Empire Center for Public Policy notes a significant problem: The leisure and hospitality sector includes casinos. In 2018, New York opened a large new casino in Monticello (Sullivan County) and expanded the Tioga Downs Racetrack (Tioga County). If you look at the chart, this is the year in which total employment diverged between the states.
McMahon also observes that Orange County’s inclusion with the rest of the border counties is probably an error. Orange has participated in the general prosperity of New York City and its environs, thus its economy is very different than the Pennsylvania comparables. With Orange, Sullivan and Tioga counties excluded, job growth drops to 2 percent, less than half the 4.5 percent experienced in the Pennsylvania counties. See his excellent discussion here.
Other evidence points to a decline in the number of full-service restaurants in New York versus Pennsylvania. Michael Saltsman of the Employment Policies Institute looked at the impact of the tipped minimum wage increase on full-service restaurants and noted a distinct difference between New York and Pennsylvania after the rate began to rise. See his discussion here and his summary chart below.
This, too, is consistent with what we would expect—there’s a pronounced shift in the restaurant business away from full-service restaurants in favor of labor-saving “fast casual” settings like Chipotle and Panera. Higher wages can be expected to accelerate the transition away from table service.
Economists envy the ability of physical scientists to conduct experiments with perfect “control” groups—exact in all respects except for the factor of interest. We do not have sufficient evidence to know the impact of New York’s dramatic minimum wage increase with confidence. Nor do we have the tools to balance the “net benefit” of the inevitable wins to some and losses to others. That’s the domain of philosophers and political scientists, not economists.
We can be certain that the increase will be good for some workers and bad for others, and that it will be benign for some employers and devastating for others. Consumers, too, can be winners and losers, depending on their individual circumstances.
Note, too, that New York’s minimum wage continues to increase into 2021. The New York Fed and others will have additional data to explore. I’m also interested in the implications of the indefensible difference between workers in fast food versus other sectors—$2.50 an hour by mid-2021.
If a recession takes hold—as some expect—low-skill workers and the marginal businesses that employ them will be more vulnerable. Yet higher earnings for more experienced workers may improve their ability to stay afloat in hard times.
Kent Gardner is Rochester Beacon opinion editor.