With minimum wage rising in NJ, some think Pa. should follow suit
Higher costs are likely and higher unemployment is a possibility after New Jersey raises its minimum wage by $1 at the beginning of 2014, some economists say.
Economists who look at the coming wage hike, approved by Garden State voters in a statewide referendum on Nov. 5, are divided over whether other states, like Pennsylvania, should follow New Jersey’s lead in guaranteeing higher pay for the bottom rung of the labor force.
Either way, the debate over minimum wage won’t be going away anytime soon, as it is likely to be a part of next year’s gubernatorial races in Pennsylvania and elsewhere.
New Jersey’s minimum wage will increase to $8.25 per hour on Jan. 1, from the federal level of $7.25 per hour. The measure was approved by 60 percent of New Jersey voters on Election Day, and it ties future increases to inflation, making New Jersey the 11th state to do so. That move erases the need for future political battles over how much the minimum wage should be.
The federal minimum wage is $7.25 per hour, which Pennsylvania uses. Pennsylvania last raised its minimum wage — from $5.15 per hour to $7.15 per hour — in 2008.
The increase in New Jersey could move could up hurting the very workers it is supposed to help, says Antony Davies, a professor of economics at Duquesne University, published a paper this month examining the potential consequences of the higher minimum wage in New Jersey.
If someone’s labor is not worth $7.25 per hour, said Davies, why would the employer be willing to hire them for $8.25 per hour.
“You’re hurting the exact workers you want to help the most,” said Davies, who is also a research fellow for the Mercatus Center, a free-market think tank partly funded by Koch Industries and based at George Mason University in Virginia. “Those people need job skills, not a higher minimum wage.”
Mark Price, a labor economist with the Keystone Research Center, a liberal think tank in Harrisburg with ties to several unions, said higher minimum wages are good for workers.
“Wage growth has not been good in Pennsylvania for quite some time,” Price said. “There is a lot of downward pressure on wages, and a minimum wage increase would be a good way to reverse that trend or to at least push back against the problem of falling wages.”
Following that increase, researchers found no change in employment levels among low-wage workers, though some employers did report raising prices to make up for the added costs.
Davies agreed that employers are unlike to lay off workers as a way to pay for the higher wages, but said the lack of change in employment can mask what is actually going on — lower-skilled workers who lose out on entry to the job market.
Though they hold divergent views on the value of a minimum wage, Davies and Price agree on certain consequences.
For one, higher costs caused by the higher wage law likely will mean higher prices for consumers, particularly if employers are not going to offset the higher costs through employment changes.
“One of the ways that an employer is going to deal with the cost of production is that you’re going to see a price increase passed on to a consumer,” Price said, adding that different companies would handle the cost increases in different ways.
McDonald’s prices might not go up, because they can absorb the costs elsewhere, Price said.
That’s because big corporations have more market power so they can, for example, negotiate better terms with suppliers to partially offset the higher wage cost, Davies said. They also can invest in cost-saving technology that might not be affordable for the average New Jersey diner.
So while raising the minimum wage may help the average worker, it appears that it certainly helps the average fast food corporation, by hurting its competition.
But those sorts of details rarely become part of the debate over increasing the minimum wage — and that is a debate Pennsylvanians are likely to hear more about in the next year.
Following New Jersey’s vote, Democratic members of the state House called for an increase in Pennsylvania’s minimum wage, including a new bill introduced by state Rep. Patty Kim, D-Dauphin, and endorsed by House Democratic leaders.
“It’s a sound government policy that a number of other states already have done, including five other states in 2013 alone,” said House Minority Leader Frank Dermody, D-Allegheny. “We want to see Pennsylvania join their ranks in 2014.”
But the Pennsylvania Chamber of Business and Industry says that rhetoric ignores the economic reality for most low-wage workers.
According to the state Department of Labor and Industry, most Pennsylvania workers who earn minimum wage live in households with incomes more than $50,000 because they are working part-time or providing a second income. And 80 percent of minimum wage workers do not have children.
“The minimum wage is designed to be an entry-level wage from which employees can work their way into higher paid positions — not a government mandate that fails to take into consideration a business’ ability to pay,” said Gene Barr, president of the chamber.
Any changes are unlikely to get very far in a Republican-controlled state government, leaving minimum wage activists little choice but to turn it into a campaign issue for next year’s gubernatorial and legislative elections.
U.S. Rep. Allyson Schwartz, D-Pa., “is strongly committed to giving Pennsylvania workers a raise,” according to a statement released after the first Democratic gubernatorial primary debate last week. Other candidates, including former DEP Secretaries Katie McGinty and John Hanger, have voiced support for increasing the minimum wage in Pennsylvania.
And with backing from President Obama, who has called for an increase to the national minimum wage all the way up to $10.10 per hour, the Democratic nominee in Pennsylvania will have a powerful cudgel to use against Republican incumbent Gov. Tom Corbett.
Price said he “wouldn’t be surprised” to see minimum wage become an issue in the general election. Davies agreed, though he added that candidates should take the time to think through the consequences.
“It’s so easy in a five second soundbite to say ‘vote for me, I’ll put more money in your pocket,’” he said. “It’s not so easy to explain all the unseen consequences of it.”
Boehm is a reporter for Watchdog.org and contributor for PA Independent. He can be reached at Eric@PAIndependent.com.