Raising Minimum Wage Would Boost Costs for Majority of Employers
Posted by Christopher Geehern on January 3, 2017
Three-quarters of Massachusetts employers would face increases in their compensation costs if state lawmakers pass a $15 per hour minimum wage, according to two recent surveys by Associated Industries of Massachusetts.
And those compensation increases would be enough to force some companies to postpone hiring or consider leaving the commonwealth altogether.
Both the monthly survey question attached to the AIM Business Confidence Index in December and the annual AIM HR Practices Survey, also taken a December, found that 13 percent of companies employed people at the former $10 per hour Massachusetts minimum wage, while another 24 percent employed people at between $10 and $15 per hour and would have to raise those wages if the minimum moved to $15.
Thirty-four percent of companies employed people at slightly more than $15 and would have to increase pay for some of those employees to deal with wage compression. Thirty-seven percent of companies said they pay much more than $15 per hour and will not be affected by a minimum-wage increase.
The Massachusetts minimum wage rose by $1 to $11 per hour on January 1, the final step in a three-year increase.
“While we are empathetic with the challenges facing lower wage staff, it is also the case that we will employ fewer hourly employees at higher minimum wages. Each dollar increase costs our company $1.5 million per year,” wrote one employer on the Business Confidence Survey.
Another commented: “This would be too much for the small business community to absorb. You'll lose many small businesses. The Massachusetts legislature should concentrate on cutting costs and make Massachusetts a more affordable place to live.”
AIM believes that raising the minimum wage to $15 per hour, while emotionally appealing and politically expedient, is an ineffective way to address income inequality.
Raising the minimum wage, in fact, represents a fundamental distraction from addressing the real economic impediments that prevent all Massachusetts citizens from sharing in the state’s prosperity. These are the same impediments, ironically, that contribute to the persistent skills shortage that threatens innovation and economic growth in Massachusetts.
Workers are ultimately compensated according to the skills, education, work ethic and value they bring to the enterprise.
Minimum-wage increases impose an arbitrary standard of value on entry-level jobs, disproportionately burdening small businesses while creating no long-term improvement in living standards for people at the lower end of the wage scale. The issue in an economy with a staggering 3.3 percent unemployment rate is not how to raise the wage but instead how to raise the economic value of each employee.
Consider a sandwich shop in Cambridge serving food to employees of companies such as Google, Biogen, or Novartis that have made Massachusetts a global center for information technology, biosciences, research and development. Many of the engineers, software designers, researchers and professional services workers who come to the restaurant for lunch make six-figure incomes from companies locked in a pitched battle for talent that will determine their success or failure in the global markets.
Given the degree to which those highly compensated employees are bidding up housing and other prices in Massachusetts, increasing the minimum wage for the restaurant workers represents a dead-end and pyrrhic victory that keeps them outside the economic mainstream.
The task instead should be to pave the way for those restaurant employees to cross the street and join the high-value economy, which will once and for all allow them to support their families and achieve financial stability.
How does that happen? Start by improving the ability of our educational system to teach all students; reduce the long waiting lists for vocational schools; make community colleges accountable for graduating students with the skills needed in the marketplace; create more high-tech software coding academies; and promote other efficient structures to provide people with the skills to succeed in the areas of fastest economic growth.
Those tasks are far more complex than raising the minimum wage but ultimately more effective. The alternative is not attractive.
“If we move to minimum wage of $15 per hour in Massachusetts, we would immediately terminate many unskilled positions and use temps. That would allow us to better eliminate labor in the slower seasons. Note that our competition is located outside Mass and would end up with a significant competitive advantage,” said one employer in the survey.