The dangers of a $10.50 minimum wage

Last week Governor Cuomo made a visit to Buffalo that had the panache of a campaign stop, as he officially launched his endeavor to increase the state-wide minimum wage to $10.50 ($11.50 in New York City) by the end of 2016.

Of course, his plan was lauded by left-leaning Democrats, some labor groups and those who look at minimum wage positions as being a career choice and not a job choice.

But, the people who keep the economy going in New York – small business owners – were taken aback by the latest and greatest in what has been a spate of wage increases in the Empire State.

While the minimum wage increase will have a direct impact on the service sector which naturally tends to pay lower wages by forcing them to reach $10.50, it will be an especially damning development for the economy’s wealth creating sectors – manufacturing and farming. They will have to make adjustments to labor costs that will significantly affect their ability to compete with other states and other countries.

As a rule, factories and farms across Upstate pay well above the minimum wage (which was $8.00 just over 2 months ago), anywhere from a couple of dollars to five more for entry-level positions. Even though they are above the minimum wage, they, too, will have to increase the starting wages as the minimum makes a major jump.

Why?

With an unemployment rate around 5% in New York it’s an extremely competitive job market. If the most basic and least-productive jobs in the economy see their starting wage rise to $10.50, the factories and farms that are currently at that rate or within a couple of dollars of it will have to raise their wages and maintain that gap that they had versus previous iterations of the minimum. If they don’t, they will lose workers who will choose easier and less physical jobs at the new minimum wage.

Because of the need to do that to maintain their workforce, keep their operations going strong, and not pay their workers the minimum wage for tasks that aren’t minimum wage work, those industries will have to pass the higher costs on to their customers.

That will be suicide.

New York businesses that grow crops or manufacture goods already have the highest cost burdens among the lower 48 state. As I’ve indicated numerous times in this column, my company alone throws away $750,000 a year on state-driven costs for electricity, taxes, workers comp and more that are over and above what our competitors in Ohio, Indiana, and Utah pay.

Were the $10.50 rate to go through, we would more than double that competitive imbalance because we would be forced to maintain the large gap we currently have against the minimum wage in regard to our starting rate. This would have to be implemented across the board, though, because there’s no way that I can tell a long-tenured coworker that the new guy we just hired is worth $2 to $3 more per hour, but he’s not. When applied to 190 people at 40 hours a week, 52 weeks a year, plus an endless amount of voluntary overtime, we’re not talking chump change.

I have no choice but to pass that on to my customers. What will that mean? A loss of business -- and likely a lot of it.

We don’t use robots. Many of our products have high labor inputs. As an example, it takes 6 to 11 people to make a kayak. Those are just the direct costs. Each of those boats is also handled by a myriad of material handlers, truck drivers, and shippers. That’s just one type of product among the dozens we make with similar effort.

What do you think customers will say when I come to them with higher costs because direct and indirect labor went up 10 to 15 percent? They’ll probably say “good bye”. Their customers – the big box stores, distributors, etc. – won’t pay higher prices (because they know the end consumer won’t) when they know someone in Utah or China can make the goods much cheaper.                   

 

It’s especially frustrating because, this year, my company is making a significant multi-million investment to ensure we have a future in Western New York. It seems like Governor Andrew Cuomo is doing everything he can to ensure we don’t.

But, we’re just one company. There are thousands more that will be adversely affected in a similar way.

The minimum wage increase won’t bring people out of poverty in New York because it will create poverty --- plants and farms will downsize, maybe even shutter, because their ability to compete in the global marketplace will be made even weaker than it is now.  



From the 09 March 2015 Lockport Union Sun and Journal