Is New Jersey’s $15 minimum wage good or bad for small businesses?
Agree or not, small business owners know for certain they will be incurring a significant cost increase over the next few years. The silver lining is that they have time to make their plans.
The hourly minimum wage that New Jersey employers pay will be going up by a dollar a year starting in 2020 until it reaches $15 per hour in 2024. That’s a fact. But it’s not anything new.
Even though Democrats in Congress are pushing to increase the federal minimum wage from its current $7.25 to $15 per hour, most believe a significant change is unlikely in the near term. Because of this, many states and localities have been taking it upon themselves to increase their own minimum wages, and places like New Jersey, California, Massachusetts, New York and the District of Columbia have gone as far as raising hourly pay to as much as $15 over the next few years.
Pennsylvania’s minimum wage remains at the national level while Delaware will increase minimum hourly pay to $9.25 later this year.
Not wanting to miss a great PR opportunity, a few large companies like Amazon, Target, Walt Disney and Ben & Jerry’s have also announced plans to phase-in a $15 per hour minimum rate. Locally, Jefferson and Main Line Health systems did the same along with Cooper University Health Care, Virtua, Trinity Health Mid-Atlantic and Christiana Care Health System. These wage increases from the state and the corporate sector are putting pressure on small businesses.
So is this a good or a bad thing? That depends on who you ask. For example, one very prominent business owner in this area is a big supporter of the bump.
“Our workforce, profitable companies, and consumers as a whole need a minimum-wage raise,” La Colombe’s founder Todd Carmichael wrote in an Inquirer op-ed last year. Carmichael, who supports a $15-an-hour national minimum wage to be gradually introduced over seven years, believes that it’s a responsibility that businesses must meet, because "unless you pay your employees a non-predatory living wage that keeps people and their families above the poverty line, you don’t deserve to be in business.”
Others in the business community are not as enthusiastic.
“Increasing the minimum wage rate to $15 an hour under the misguided principle of reducing poverty rates and bolstering the economy is deceitful,” Laurie Ehlbeck, New Jersey state director of the National Federation of Independent Business, said in a statement in response to New Jersey’s proposed increase. "The minimum wage was never intended to feed entire families or act as an engine to drive the economy. It was designed as a training wage for lower-skilled, less-experienced workers. Increasing the minimum wage will maximize the damage done to the very people proponents of this measure claim to desire to help.”
Data have not been helpful in resolving this debate. Multiple studies have looked at the impact of an increased minimum wage on hiring and employment over the last two decades, with conflicting results.
For example, a 2017 analysis carried out by the University of Washington concluded that that the costs of Seattle’s minimum wage increases — which were mostly cutbacks in employee hours — outweighed the benefits by a 3-1 ratio, and an additional investigation by the National Bureau of Economic Research that year found “robust evidence” that employers who raised the wage also reduced the amount they paid workers for health care and other benefits, to offset the added costs. Supporters, however, point to studies like one released in late 2018 by the University of California, Berkeley that found minimum wage increases in cities such as Washington, Chicago, San Francisco, and, yes, Seattle resulted in no job losses.
Most of my small business clients, while not paying as much as $15 per hour as a minimum are at least paying more than the federal level. They understand that an increase in minimum wages has the added effect of raising the compensation floor and as a result puts pressure on the wages paid to all employees. That’s an enormous challenge if you’re running a small business. So what can you do?
You can — like many fast food chains across the country — increase your prices to offset this cost. You can — like CVS, Amazon, and most major airlines — invest in self-service and robotic technologies that will keep employee numbers low. You can take another look at your overhead expenses and become more draconian in your spending. Or you can absorb the costs and focus more on making your employees happier and more loyal, which, as La Colombe’s Carmichael believes, will help create “a better customer experience, better products, better culture, and brand. And, ultimately, a healthier, more profitable and faster-growing company.”
Agree or not, small business owners across the country and now in New Jersey know for certain they will be incurring a significant cost increase over the next few years. So if there’s any silver lining for them, it’s that they have time to make their plans.
Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.