New Jersey’s destructive minimum wage amendment

Kevin Mooney Kevin is a journalist and investigative reporter for the Commonwealth Foundation in Harrisburg, Pennsylvania, and the Heritage Foundation in Washington D.C.
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On the ballot in New Jersey this Tuesday is a proposed constitutional amendment that, if passed, would put “working families” and business owners at a perpetual disadvantage.

For this, they can thank elected officials who have spent the past year posturing before the public in compliant media outlets as enlightened, compassionate proponents of a “living wage.” The benign catchphrases attached to the ballot proposal belie hard economic realities that have gone largely unreported at the expense of the most vulnerable members of the labor force; the low-wage, low-skill workers the political class claims to champion.

Polls show that voters appear set to embrace the amendment, which would boost the state’s hourly minimum wage from $7.25 to $8.25, and provide for automatic annual increases based on the Consumer Price Index (CPI). On the surface, this may sound compassionate. After all, who doesn’t support a “living wage” for the neediest workers? But when the government sets the minimum wage at a higher rate than what businesses can afford to pay for unskilled laborers, the end result is higher unemployment and less opportunity.

This is what a steady chain of economic studies have concluded. Just last year, for example, the Rhode Island Center for Freedom and Prosperity released a new report that focused on how increasing the minimum wage exacerbated teenage unemployment. The study, which is based on findings of economists David Macpherson and William Even, also includes a national survey of minimum wage laws in 2011. Among the 24 states with unemployment over 8 percent that year, 11 had set their minimum wages above the federal $7.25 per hour, while only six of the 26 states with an unemployment rate of 8 percent or lower had set elevated minimums.

“The whole premise upon which an increase in the minimum is sold to the public is entirely false,” says Mike Stenhouse, who heads up the Rhode Island think tank. “The idea that a higher minimum wage will help families trying to survive is a complete myth. What we found in our state is typical for the rest of the country. The largest number of people on the minimum wage are not the heads of households. Most are in fact young people living at home looking to gain work experience and build their resumes.”

U.S. government figures are very much in line with these observations, but they run contrary to the narrative New Jersey lawmakers have been peddling to their constituents. Here is what State Senator Richard Codey (D-Essex) asked members of the press last November after sponsoring the bill that would raise the state minimum wage. “You know how many people work two jobs out there to support their families at these rates without their benefits?” The answer is not many.

In fact, over 80 percent of minimum wage workers are teenagers, single adults living alone or dual-earner married couples, according to an analysis of U.S. Census data the Employment Policy Institute (EPI) performed as part of its own study. Here’s another key finding that should give N.J. voters pause. “For every 10 percent increase in the minimum wage, teen employment at small businesses is estimated to decrease by 4.6 to 9.0 percent,” EPI concluded.

That’s why Gov. Chris Christie vetoed Codey’s bill to raise the minimum wage back in January. In the aftermath of Hurricane Sandy, Christie warned that employers may not be able to absorb such abrupt increase in so short a time frame. (The $1.25 increase would go into effect next March) As an alternative, Christie agreed to accept a gradual increase over time without the CPI mandate. Instead, the Democratic legislature decided to bypass the governor’s veto by placing their original proposal on the ballot for public approval. But by enshrining labor costs into the constitution, the Legislature will be constrained from making any future adjustments to wages that would give businesses added flexibility in recessionary periods.

This means teenagers should expect to find fewer jobs. So when Codey implores fellow lawmakers to “help these people” and to “be compassionate,” toward their needs in the form of a higher minimum wage one has to wonder who is he talking about. Certainly not low wage earners.

There’s no real mystery here. What has been slyly repackaged as “living wage” is in fact a political payback the Democratic Party is offering up to its union benefactors. A higher minimum wage make it more expensive for businesses to higher low-skill workers and this translates into less competition for union members who are paid higher wages. Barbara Buono, the Democratic candidate for governor, left that part out when she addressed union leaders at an IBEW dinner held in support of the amendment.

“It’s hard to imagine that in 2013 people working have to live on $7.25 an hour,” Buono declared during the dinner. It’s hard to imagine because labor statistics show that it’s not happening.

In retrospect, Christie stands out as the compassionate figure looking to expand opportunities for those at the greatest disadvantage. The same can be said for Washington D.C. Mayor Vincent Gray who vetoed an anti-Wal-Mart “living wage” bill back in September that included an exemption for employers who collectively bargain with their workers. But don’t expect to read about this side of the story in media reports that wallow in economic illiteracy.