In his budget address on Tuesday, New Jersey Gov. Chris Christie proposed cutting income taxes to make the state more competitive in the race for jobs and investment. But even as Christie struggles to improve the business environment, Democrats and some Republicans in Trenton are working to undermine it with a proposal to boost the state’s minimum hourly wage to $8.50 from $7.25 and then index future increases to inflation.
Their proposal, rapidly gaining steam, mirrors one that Democrats in Albany are pushing Gov. Cuomo to endorse.
Supporters tout the move — which would give Jersey one of the highest minimum wages in the country — as “stimulus.” Assembly Speaker Sheila Oliver even said that raising the minimum wage would give lower-income families thousands more dollars to spend. What she failed to mention is that it would do so at the cost of perhaps tens of thousands of jobs.
The minimum wage is one of the most studied economic policies. Hundreds of studies have concluded ‘that raising it destroys jobs while doing nothing to reduce poverty. One leading authority on the topic, economist David Neumark, recently observed, “Based on 20 years of research, I doubt there is ever a good time to raise the minimum wage.”
Research shows that a minimum-wage hike is especially bad for unskilled young workers because businesses reduce hiring when required to pay those workers more, especially in downturns, when profits are tough to come by.
Nor does hiking it help families out of poverty — because most of those earning the minimum wage are not workers in poor families but rather teens and young adults from higher-income families who are working (often part time) to supplement family income.
What really boosts workers’ income isn’t government wage laws but rather “more schooling and the accumulation of experience and skills in the labor market,” Neumark observes.
Raising the minimum wage now might well cancel out any progress Jersey has made in the last two years in holding the line on business costs, after nearly a decade of sharply higher taxes and fees that made it uncompetitive.
As recently as 2002, Jersey was still considered a reasonably good place to do business. But then came two years of heavy tax and fee boosts and regulations under Gov. Jim McGreevey. A 2004 Beacon Hill Institute study on states’ competitiveness ranked Jersey 44th.
Businesses clearly started avoiding the state. In 2002, the CEO of Federated Department Stores wrote McGreevey, warning that he was transforming the state from “one of the most desirable places to do business to one of the least.” Today, Federated (since renamed Macy’s, after its signature division) operates 31 stores in Jersey, down from 37. Total retail employment in the state has declined by 30,000 jobs since 2002.
One telling metric is job migration, which measures the relocations of jobs and businesses from state to state. Over the last decade, Jersey ranks among the 10 worst states in job migration, according to the National Establishment Time Series database.
The state can’t compete for bread-and-butter blue-collar jobs. Last year, the California Manufacturers and Technology Association ranked each state by the per-capita investment it received in new or expanded industrial facilities. Jersey finished 49th.
Legislators in Trenton have consistently betrayed businesses. One example: From 1992 through 2006, state government raided $4.6 billion from Jersey’s unemployment trust fund — money that came from taxes paid by businesses — and used it to finance other spending. When the economy soured, the trust fund promptly went broke — forcing more tax hikes on firms.
Of course, New York is a (slightly) more hostile environment for business than New Jersey. Still, the minimum-wage hike is gaining traction in both states in this election year because Democrats and Republicans in swing districts hope it’ll win them votes. Both groups are hoping to pressure Govs. Christie and Cuomo into endorsing a wage hike to strengthen their own positions with sympathetic voters.
Tellingly, there’s no effort in Washington to raise the federal minimum wage. The feds raised it three times between 2007 and 2009, and one study estimated that those hikes reduced teen employment by about 114,400 jobs.
That’s the kind of stimulus New York and New Jersey can do without.
Steven Malanga is a senior editor with the Manhattan Institute’s City Journal.