New York's Minimum Wage Opportunity

Last year, the New York Legislature took a step in the right direction when it permanently tied the state's minimum wage to the federal level. When the Assembly passed a minimum wage bill earlier this month introduced by Assemblywoman Catherine Nolan (D-Queens), it got the ball rolling to increase the New York minimum wage to $6.75 an hour in January 2000. Now the ball is in the Senate's court, where a companion bill introduced by Senator Nick Spano (R-Yonkers) awaits action. It would be a misfortune for the state's low-wage workers if the Senate were to miss this historic opportunity.

The minimum wage contributes to good public policy in the effort to reduce poverty by making work pay. In New York, increasing the minimum wage to $6.75 will significantly raise income for well over 1 million workers. Most of the beneficiaries are adults, most are female, and the vast majority are members of low-income working families.

By increasing its minimum wage, New York would join a growing list of states where voters have chosen to take control over wage policy rather than wait for Congress to act at the federal level. Current proposals in Washington to raise the federal minimum wage to $6.15 an hour over the next two or three years face an uncertain future.

There are now ten states plus the District of Columbia with minimum wage levels above the current $5.15 Federal level. These include four neighbors: Vermont ($5.75), Massachusetts ($6.75 as of 2001), Connecticut ($6.70 as of 2002), and Rhode Island ($5.65). The highest minimum wage in effect now ($6.50) is found in Oregon and Washington, both the result of voter initiatives. The state of Washington has taken the further step of indexing its minimum wage to the consumer price index.

The Nolan-Spano bill includes a similar provision which would index future wage increases to New York's average weekly wage. The importance of this provision is illustrated by the loss of purchasing power the minimum wage has suffered over recent decades. In 1968 the minimum wage was equivalent to nearly $8.00 an hour expressed in current dollars, compared to $5.15 an hour now. Thus, this bill effectively restores lost purchasing power to the lowest paid workers and guarantees that they will share with the rest of us in the benefits of future economic growth.

It is not hard to see why voters and political leaders in high-wage states would want to take control over their own economic destinies in this way. High-wage states have higher productivity, and can afford higher statutory floors. Why should New York and Mississippi have the same minimum wage? New York state also has a higher cost of living than states in the South and Midwest. These arguments have become increasingly salient because the Congress has allowed the purchasing power of the federal minimum wage to drop over the last three decades.

Opponents of the minimum wage complain that it would harm business and job growth in New York state. Obviously, that is a serious concern. But the best evidence shows that past increases in minimum wages, at the federal or state level, mainly did what they were supposed to do, raising income for working families at the bottom while causing very little, if any, employment loss.

The economics profession began to rethink its assessment after studies by David Card and Alan Krueger, well-respected economists at Berkeley and Princeton, found that the 1992 New Jersey minimum wage had no effect on the number of jobs in fast-food restaurants there. They compared New Jersey and Pennsylvania, and found that jobs actually increased in the New Jersey restaurants, although the effect was not statistically significant.

Some opponents of the New York state minimum wage argue that it would put New York businesses at a competitive disadvantage. But in manufacturing, where competition from other states is an issue, few workers would be affected. Most minimum wage workers are in the retail trade, restaurant, or other service industries. There might conceivably be some "business stealing" effect in markets close to the border in these sectors, but as we have seen, many of our neighbors pay above the federal minimum. When Massachusetts increased its minimum wage to $6.00 an hour on January 1, 2000 we did not see a massive flow of jobs across the border to New York. In fact, neither Massachusetts nor Connecticut lost any ground in their relative shares of regional employment since their state minimum wage increases took effect.

In its 1999 Economic Report of the President, the Council of Economic Advisors remarked that "the weight of the evidence suggests that modest increases in the minimum wage have had very little or no effect on employment." It is always hard in such a contentious field as economics to made sweeping generalizations. Certainly a minority of economists remain skeptical of the Card and Krueger findings, even though they have been corroborated by numerous studies. A good rule of thumb is that when economists disagree about the direction and size of an effect, its true magnitude is probably small.

If Governor Pataki or the Senate are still concerned about potential job losses, they might consider instructing the New York State Department of Labor to begin now designing a survey which could generate a data base suitable for assessing the impact of the $6.75 minimum wage, perhaps in consultation with academic economists and labor departments in other states. If this turns out to be an excessive level which imposes substantial, measurable hardship on workers then the legislature can take the opportunity to make adjustments to the indexing formula in the future.

In the meantime, economic research and a promising bipartisan coalition favor raising the New York minimum wage.