Businesses Say Higher Minimum Wage Leads To Job Loss

TRENTON -- Acting Gov. Richard J. Codey's push to make New Jersey the latest state to raise its minimum wage has been met with a sense of relief by the state's working poor. But some small business owners say that feeling won't last long, once businesses are forced to cut hours, lay off workers, relocate or even shut down.

"It will increase my costs considerably," said Adrian Stevens, a partner in two restaurants in New Jersey. Combined, The Chapter House in Howell and The Tiger's Tale in Montgomery employ roughly 100 people.

Stevens, who pays minimum wage to workers in training, says he plans to move in July to Florida, where he says it is easier to afford to run a small business.

Stevens said if a hike is approved, he will have to "cut overtime, cut nonessentials, do the same with less. ... I can't raise pricing, the marketplace won't allow it."

Last Monday, Stevens and other businesspeople sat in a packed Statehouse committee room to take their case to the Senate Labor Committee. Those like Stevens argued that businesses can't afford to pay workers more. Advocates for the working poor and a handful of minimum wage workers said they must.

With the federal minimum wage stagnant since 1997 -- the second-longest span since its creation in 1938 -- 14 states and Washington, D.C., have pushed their rates above the federal minimum. Neighboring states New York, Connecticut and Delaware have adopted minimum wages higher than the federal rate of $5.15 per hour.

"Because the federal government isn't doing it, the states are," said Ellen Kearns, a partner with Epstein, Becker and Green, specializing in labor and employment law. Her firm is based in Boston. Massachusetts raised its minimum wage to $6.75 last January.

In 1992, New Jersey adopted the nation's highest minimum wage, when then-Gov. James Florio made it $5.05 per hour. Since former Gov. Christie Whitman tied the rate to the federal minimum in 1999, New Jersey's wage has remained at its current $5.15 per hour.

Last Monday, the Senate Labor Committee approved giving the state's lowest-wage workers a $2 raise by October 2006. The full Senate could consider the bill at its voting session on Feb. 14.

The bill, sponsored by Codey, Sen. Stephen M. Sweeney, D-Gloucester, and Sen. Joseph F. Vitale, D-Middlesex, calls for employers to pay at least $6.15 per hour by this October and $7.15 per hour by next.

Help needs to be given to those in "the nightmare of living check to check," Vitale said. Codey said the move would assist more than 200,000 Garden State workers who make less than the proposed minimum.

One such person, single mother Francisca Cepeda, immigrated from the Dominican Republic two years ago. To afford her one bedroom apartment in Perth Amboy, the Spanish-speaking woman relies on the factory jobs, paying just above minimum wage, she gets through labor agencies.

"It is really difficult," Cepeda, who shares a bunk bed with her two children, said through an interpreter. With a $2 increase in the minimum wage, "I would at least have the possibility of paying all my bills," she said.

The measure to hike the minimum wage was unanimously approved, making its sponsors optimistic it will have broad support in the full Senate.

It calls for the creation of a "Minimum Wage Advisory Commission" that would conduct annual evaluations of the pay rate and recommend needed increases. Its five members would include the state labor commissioner, two members nominated by business groups and two members chosen by the New Jersey State AFL-CIO.

The proposal also gives individual counties and municipalities the power to set their own minimum wages for companies that enter into contracts with them.

Advocates for the working poor say, instead of the council, they would prefer a formula that would annually adjust the wage to account for the rising cost of living.

"Indexing is still the number one way to do it because it is automatic," said Jon Shure, president of New Jersey Policy Perspective, a Trenton-based think tank that in November called a minimum wage of $7.50 per hour.

Shure says beyond helping the 75,000 New Jersey workers earning $5.15 or less -- including many workers such as waitresses who also earn tips and are exempt from the minimum wage --- the hike will ultimately cause a ripple effect leading to increased wages for those who make above minimum wage, but still rank low on the pay scale.

"When the people below you are starting to make what you make, you start to get a wage increase too," Shure said.

Business leaders say companies will be left to deal with the "compounded cost" of that ripple effect. When the entry level pay rate is increased, it could cause veteran workers to demand higher pay, said Philip Kirschner, president of the New Jersey Business and Industry Association. "Employers will have to respond to that," he said.

Kirschner said he is also concerned about the effect on the job market in South Jersey, where businesses compete with those in Philadelphia. Pennsylvania has no plans to increase its wage, he said.

Joseph Seneca, chairman of the New Jersey Council of Economic Advisors, says businesses are worried the hike will impact New Jersey's entire wage structure.

"Concern in the business community is that all wage costs raise in response, making New Jersey businesses less competitive," Seneca said. But he said that wage structure is dependent on supply and demand for labor, rather than "raising the floor to catch up with where it was seven years ago."

Roughly 11,000 Garden State workers earn minimum wage, according to the U.S. Bureau of Labor Statistics. In November, the total employment in New Jersey reached an all-time high of 4.07 million nonfarm jobs, according to the state Department of Labor.
The number of minimum wage earners is "a tiny slice" of New Jersey's workforce, Seneca said. "The overall issue is the cost of doing business in New Jersey," Seneca said. "This is an increase, although relatively few people are earning minimum wage and even fewer are heads of households."

Nationally, workers earning minimum wage or below are seven times more likely to work part-time than full-time, tend to be young, are more often single than married, and usually work in service-type occupations in industries like leisure and hospitality and food service, according to the Bureau of Labor Statistics.

New Jersey is the third most expensive state in which to do business, behind only Massachusetts and California -- both of which have minimum wages above the federal level -- according to Economy.com, an economic, financial and industry research company based in Westchester, Pa. Some business representatives say a hike in the minimum wage would be another blow to New Jersey's business climate.

"If they cut back on taxes and fees, then we could afford the minimum wage," said Richard M. Goldberg, president of the Commerce and Industry Association of New Jersey.

Proponents of the increase point to other statistics. For instance, New Jersey has the third highest home rental costs in the nation, also behind only Massachusetts and California. Its cost of living is roughly one-third greater than the national average, according to the Virginia-based nonprofit research organization ACCRA.

The state remains subject to a national minimum wage that is worth $2 less than it was in 1968, said Beth Shulman, who spent three years traveling the country interviewing low-wage workers for her book "The Betrayal of Work: How Low Wage Jobs Fail 30 Million Americans".

"So raising it to $7.15 an hour is just merely raising it to keep up with inflation," Shulman said.

Paul Dorf, managing director of Compensation Resources Inc., a human resources and compensation consulting firm based in Saddle River, said raising the minimum wage will not be "doom and gloom" for businesses.

"If you want to keep good people, you have got to pay them decent wages," Dorf said. Dorf said he hopes the move will lead to reduced turnover, which in turn would save companies money.

Recruiting and training new workers, checking references, and performing drug tests gets expensive, said Eileen Applebaum, director of the Center for Women and Work at Rutgers University.

"When minimum wage goes up, it reduces turnover," Applebaum said. "It can be quite cost effective."