“I think most business owners’ gut feeling is: ‘It’s not going to be good,’” Rod Dion, who owns a small business in Albany, N.Y., said of New York’s new law hiking the minimum wage to $15 an hour.
“I think there is a lot of concern, because I don’t think any of us understand what [the wage increase] is all going to mean,” Dion, owner of an 11-year-old interior design and office furniture business, told The Daily Signal.
Under New York’s new law, the minimum wage gradually will increase, implemented at different increments depending on the region of the state.
“I’m not only concerned on how it’s going to affect my budget and what I’m paying my employees,” Dion, who sells mostly to other businesses, said. “But I have this concern: Will my customers start buying less because their labor rates have gone up?”
New York City employers with more than 10 employees will see the jump to $15 by 2018, while businesses with fewer than 10 employees have until 2019.
By 2021, employers in Long Island’s Nassau and Suffolk counties as well as Westchester County will have to implement the $15 minimum wage.
For the rest of the state—the upstate and suburban regions—the minimum wage will reach $12.50 an hour by the end of 2020, with incremental increases to $15 still to be determined.
>>> California’s Economic Future After Huge Minimum Wage Hike
While Dion’s furniture business has done jobs around the country, including at Walt Disney World, he says about 90 percent of his business takes place in upstate New York.
“In my type of business, we may do four or five large-type jobs a year,” he said. “When we do that, we bring in extra help.”
Dion will hire five to 15 hourly or “labor ready” workers for shorter periods, around five or six weeks at a time.
“The irony of all this is the costs of those types of employees keep going up and up and up,” Dion said.
Because of the change, he added, “I would just stop using those type of employees.”
Dion told The Daily Signal that most of his nine full-time employees already make more than $15 an hour.
Like other business owners who already pay that much, wage compression may become a reality as Dion determines future costs for employees who currently earn more.
The New York Assembly included the minimum wage hike, as well as paid family leave, in budget legislation that passed 104-39. The state Senate already had passed it, 61-1. Gov. Andrew Cuomo, a Democrat, signed the legislation April 4.
California recently enacted a law requiring a statewide minimum wage of $15 an hour by 2022.
Effects on Mom-and-Pop Shops
“We’re going to be putting our small businesses and family farms in peril with this increase,” state Assemblywoman Claudia Tenney, R-New Hartford, told The Daily Signal. The wage increase will be “confusing to regulate,” she said.
“It’s the smaller businesses, it’s the mom-and-pop type shops, that are going to be hurt the most,” Tenney, a small business owner herself, said.
Tenney, who voted against the budget bill including the wage hike, said it “makes New York not competitive if you’re selling across state lines with your business.”
A business owner in Utica, N.Y., is trying to build on what he started 13 years ago.
“It stunts your growth when you’re forced to pay someone even more,” Howard Potter, who owns A&P Master Images, told The Daily Signal. Potter added:
Minimum-wage jobs are not a lifestyle; they’re a stepping stone. Those jobs are created for the small business owner to get an extra set of hands, whether the person has experience or not, at a low-scaled position that they can teach anyone.
‘A Little Discouraging’
Potter says about 60 percent of his business is in New York, while the other 40 percent takes place in 15 other states and four countries.
“That’s where it makes it a little discouraging not just for my business, for any business, because you have Pennsylvania next door that pays a $7.25 minimum wage,” Potter said.
Potter estimates the first wave of minimum wage increases will cost his family-owned business about $34,000 next year. He’ll need to do more volume, he said.
“For comparison, when someone sells a cup of coffee, they sell either hundreds or thousands,” Potter said. “With us, we sell apparel and promotional products, so we need to increase our volume to help reduce what our increasing costs will be for employees.”
Eleven of his 17 employees hold four-year degrees in graphic design. To keep his staff “ahead of the minimum wage, so they don’t feel they’re less of an employee,” he said, he’ll have to raise pay across the board, “whether someone earned it or not.”
Kathleen Rutishauser, co-owner of Daughter for Hire in Clinton, N.Y., said she is worried about the impact on the state’s elderly population “because the client is the one that’s going to be hard-pressed to pay a higher rate.”
Rutishauser’s upstate business provides services to senior citizens to help them continue to live safely in their homes.
She wrote in March to New York assembly members and government officials to express her concerns. In the email, which Rutishauser shared with The Daily Signal, she wrote:
The business that I co-own employs 45 hourly employees and we serve the senior citizen population in Oneida and Herkimer counties. The increase, if passed, will adversely affect our business in terms of an increase in wages, payroll taxes, and in our workers’ compensation premiums. This will result in a proportionate and steep rate increase, which would include all of the above stated items, and it will be passed directly along to our clients.
Our clientele is the senior citizen population, which is primarily on a fixed income. An increase of this magnitude will surely have adverse effects on this vulnerable group of New Yorkers, as the prices for assistance will most likely be beyond their reach. As a means of comparison, the increase in Social Security payments for this group over the past five years has averaged 1.7 percent and for 2016 shows no increase.
‘Too Much, Too Fast’
“The reality is that very few, if any, small businesses have the ability to easily and readily adapt to significant cost increases like this,” Zack Hutchins, director of communications for the Business Council of New York State, told The Daily Signal.
To accommodate for cost increases, Hutchins said, businesses can cut back hours, hire and keep fewer employees, reduce benefits, and increase prices, and “ultimately, they can make the determination that they no longer have a viable business model” and close.
Since 2013, the minimum wage in New York has risen from $7.25 to $9 an hour.
“With $15 an hour, you’re talking about a 67 percent increase over the current statewide minimum wage of $9 an hour,” Hutchins said, adding:
Obviously, to impose a 67 percent price increase on any business is something that few, if any, are equipped to handle. It’s going to have a significant and mostly likely pronounced negative impact on many businesses and their ability to expand, to hire new workers, and in some cases even to remain open.
New York’s wage increase is “too much, too fast,” he said.
The Business Council estimates that the hike will cost $8,000 per job upstate and $13,000 downstate when fully implemented.
Helping Workers ‘Keep Pace’
Supporters say it’s worth it.
“By raising the minimum wage to a more realistic level, we are rewarding work and helping the incomes of working people keep pace with the rising cost of living,” Michele Titus, a Democrat who is chairman of the assembly’s Labor Committee, said in a formal statement.
Advocates for the higher wage also say it is about “economic justice.”
“For many years, we have led the charge to raise the minimum wage to a level that puts our families on a path to success, not poverty,” Assembly Speaker Carl Heastie said of New York’s Democratic Party.
Opponents say the higher minimum wage will be “disastrous” for small business employers.
“This is going to be an economic disaster, particularly in upstate New York,” Mike Durant, New York director for the National Federation of Independent Business, told The Daily Signal.
200,000 Jobs at Stake?
The median wage in upstate New York is about $15 an hour, the Business Council’s Hutchins said:
By increasing the minimum wage to even $12.50, you’re getting way too close to that median wage. Even the most liberal economists will say that you want your minimum wage to be roughly 55 percent to 65 percent of whatever the median wage is in that locality in order to not negatively impact jobs.
A study done by New York’s Empire Center for Public Policy found that a statewide $15 minimum wage could cost at least 200,000 jobs and as many as 400,000 jobs at the high end.
Businesses that can afford to do so may turn to technology such as the self-service kiosks at McDonald’s and Burger King that replace cashiers.
“Restaurants often work on very, very small profit margins,” Kevin Dugan, the NYC regional director for the New York State Restaurant Association, told The Daily Signal:
When labor costs rise, your restaurant’s going to be forced to look at different ways to raise that revenue in other areas, whether it’s cutting back on food costs, whether it’s raising prices for customers, whether it’s cutting back on operating hours or, in some drastic cases, maybe even laying off employees.