A new UC Berkeley report finds that raising the minimum wage in New York have large positive effects on living standards and very small effects on employment.
New York Gov. Andrew Cuomo is seeking legislative support to increase the state's minimum wage to $15 an hour by Dec. 31, 2018, in New York City, and by July 1, 2021, in the rest of the state. Californians may vote on a similar proposal in November.
"The policy will have large positive effects on living standards and very small effects on employment," concludes UC Berkeley's team of labor market researchers from the Institute for Research on Labor and Employment in the latest in a series of studies of minimum wage policies under consideration or being implemented by cities and states across the country.
The New York analysis is based on a comprehensive new labor market model that the researchers developed to project how workers, businesses and consumers will adjust over the five years of the higher minimum wage's phase-in. The model draws on an extensive academic literature on the economics of labor markets, business practices and consumer markets and examines the interactions among the various effects.
If New York enacts a $15 minimum wage, the Berkeley team forecasts some additional automation in low-wage industries, with higher payroll costs for businesses partly offset by savings in employee turnover expenses and employee productivity gains. Consumers would absorb a 0.2 percent annual price increase over the phase-in, equivalent to about a nickel for a $3 box of Cheerios. Consumer inflation has averaged nearly 2 percent a year in recent years.
- Among the other key findings:
- About 37 percent of the New York workforce will benefit from increased earnings.
- For those receiving higher wages, annual pay will increase $4,900 a year on average (in 2015 dollars), boosting consumer spending.
- Three industries account for nearly half of the workers getting increases: retail (18 percent), health care and social assistance (16 percent) and restaurants (14 percent).
- Overall payroll costs in the state will increase by only 3.2 percent, since many businesses already pay over $15 and many workers getting a raise already earn over $9, the state's current minimum wage. Also, labor costs average one-fourth of business operating costs.
- Businesses will experience lower employee turnover, generating savings in recruitment and retention costs that will offset about one-eighth of the higher payroll costs. Worker productivity will also increase.