ALBANY, N.Y.—The Business Council of New York State today announced its objections to the fast food Wage Board called for by Governor Cuomo and convened by Acting Labor Commissioner Mario Musolino. The Business Council will submit formal comments, and testify in person, at the June 22 meeting in Albany, NY.
“The Business Council does not support this sector-specific wage board initiative,” said Heather C. Briccetti, president and CEO of The Business Council of New York State, Inc. “Increases in the state minimum wage should be addressed though the state Legislature, not unilaterally by the Commissioner of Labor as the statute currently allows.”
Since 2005, the state Legislature has adopted six minimum wage increases that exceeded the federal minimum wage, including the increase to $9 per hour that takes effect on 12/31/15 for all economic sectors. In contrast, the current wage board process would be the first time since at least 1962 that an administrative wage order is being used to set mandated wages above the state’s statutory level.
The Business Council’s objections fall under three main categories:
Defining the Industry
In crafting a specific definition of “fast food chain,” the board will have to make distinctions that result in arbitrary and disparate treatment of businesses and their employees. This runs contrary to the board’s objective of preventing unfair competition, and will impose significant implementation hurdles for business. It also raises many questions, including:
- What types of businesses will ultimately have to comply with the Wage Board’s ruling and how will the board define those who must comply?
- What is the distinction between a “large chain” and a lesser one?
- In settings where more than one business service is provided at the same site – gas station/convenience store/food service is an increasingly common grouping – would this wage order cover some but not all workers at such location?
- At food service establishments providing both take out and “sit down” options, how would this wage order apply to workers serving both types of customers?
Increased Costs: The Commissioner’s “charge” to the wage board did not provide any target wage. But we know advocates are pushing for $15 per hour, and legislative proposals earlier this year included that and other figures. Each of these proposals would impose significant additional costs on the fast food industry.
When the third step of the state’s 2013 minimum wage legislation takes effect on 12/31/15, New York’s minimum wage will be $9 per hour for all industries. At that time, New York’s minimum wage will be 24 percent above the federal minimum wage, and will be exceeded by that of just seven other states.
It is crucial for the wage board to consider the aggregate cost and affordability, as well as impact on job opportunities, of any proposed minimum wage.
As illustration of the aggregate impact of minimum wage increases, the “all sector” minimum wage increases proposed in the Executive Budget, of $11.50 in New York City an Nassau and Westchester counties, and $10.50 in the remainder of the state, was projected as increasing labor costs for business by $3.4 billion. During the FY 2016 budget cycle, the state Assembly proposed even higher wage levels, $15 in New York City and $12.60 in the remainder of the state (effective 12/31/18) The aggregate costs of that proposal would be far higher.
As shown in the following chart, these proposed wage levels would impose significant additional costs on individual employers, ranging from $3,488 to $13,950 on a full-time equivalent basis, when payroll costs are considered in conjunction with mandatory resultant increases in social security, and Medicare taxes and workers’ compensation costs. Compared to the federal minimum wage, which remains the wage standard in twenty-one states, these increased costs are even more significant.
Target Wage
$10.50
$11.50
$12.60
$15.00
Total Annual Payroll Increase/ per FTE (compared to $9/hour)
$3,488
$5,813
$8,371
$13,950
Total Annual Payroll Increase/ per FTE (compared to federal minimum wage)
$7,556
$9,881
$12,439
$18,018
“At a time when many areas of New York State continue to struggle to recover jobs lost in the 2009 recession, the last thing the state’s economy needs is a significant increase in mandatory labor costs,” said Ken Pokalsky, vice president of The Business Council of New York State. “But that is what a minimum wage hike is – an employer cost mandate, that will result in increased prices, reduced profitability, or reduced spending on labor or other business needs.”
For an employer, especially a small business employer (which is the case for many franchised fast food restaurants, i.e., for the nation’s largest fast food company, more than 80 percent of its restaurants are owned and operated by franchisees) these costs add up fast, especially with the economy producing little in the way of new sales.
To accommodate these increased costs, business have limited choices: increase prices; divert resources from other purposes; attempt to become even more “efficient;” or purchase less labor, meaning either a reduction in hours or elimination of jobs for some workers. A recent report by the Employment Policies Institute, based on a survey of more than 900 fast food restaurant owners/operators in New York State, showed that 83 percent are likely to reduce hours or positions in response to a $15 per hour minimum wage.
Effect of Minimum Wage Increases
The Business Council believes New York needs to adopt policies to expand economic opportunity in many regions of New York State. However, for several reasons, imposing new wage mandates will do little to increase economic opportunity or reduce poverty.
A large percentage of minimum wage workers in the U.S. are not members of low-income households. In February 2014, the Congressional Budget Office issued a report showing that less than 20 percent of the benefits of a federal minimum wage increase go to households with income below the federal poverty threshold. The same report found that 30 percent of the benefit goes to households with income three times the poverty level and higher, with the largest share going to middle and upper middle class families.
The data provided to wage board members by the Department of Labor likewise illustrates that many fast food workers in New York are young, and unlikely to be heads of households. Just over 40 percent of all workers in this sector are under the age of 24, more than three times the concentration of young workers than found in all occupations in New York State.
As a final point, a recent U.S. Census Bureau report, " Income and Poverty in US: 2013," shows that of the 26.4 million U.S. residents between 18 to 64 years old in poverty, 15.8 million or 59.7 percent did not work a full week that year. Whether due to the lack of available jobs, an individuals’ lack of marketable skills, or other factors, this data illustrates that minimum wage increases by themselves will do nothing to help a significant share of the nation’s, or the state’s, poor. In contrast, among adults who had year-round full-time employment in 2013, just 2.7 percent were in poverty.
In closing, The Business Council believes that the state’s long-term future requires improvements in the state’s overall economic competitiveness. Imposing significant new costs on employers, including new or increased wage mandates, is contrary to achieving that objective.
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