New York wage board approves $15 minimum wage for fast food workers: The plan makes no sense.

New York Is About to Launch an Especially Terrible Experiment With the $15 Minimum Wage

New York Is About to Launch an Especially Terrible Experiment With the $15 Minimum Wage

Moneybox
A blog about business and economics.
July 22 2015 6:34 PM

New York Is About to Launch an Especially Terrible Experiment With the $15 Minimum Wage

15_new_york
Fast food protesters in New York City, where a $15 minimum wage makes far more sense than, say, Buffalo.

Reuters

As was widely anticipated, a board convened by New York Gov. Andrew Cuomo voted Wednesday to raise the minimum wage for fast-food workers across the state to $15 per hour. Once the recommendation is approved by the state's labor department, as most expect it will be, it will become law. This, of course, follows after San Francisco, Seattle, and Los Angeles all passed ordinances that will push their citywide pay floors to $15. Whatever you might think about the wisdom of those moves—I'm skeptical—New York's plan seems to be far more ill-conceived.

Jordan Weissmann Jordan Weissmann

Jordan Weissmann is Slate’s senior business and economics correspondent.

There are two main reasons. First, while it may be easy for some to forget, New York State is not in fact synonymous with New York City. It includes economically haggard rust belt towns and relatively poor cities like Buffalo where there's a much weaker case that a $15 minimum wage is appropriate. Cuomo's wage board has tried to account for this—it says the increase in New York City should happen by 2018, while the rest of the state will have until 2021. But even with additional adjustment time, $15 will still be relatively steep in cities such as Syracuse and Binghamton.

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Here's one way to look at the issue. Economists often judge the appropriateness of a minimum wage by comparing it with the local median wage—the theory being that, in cities with higher pay across the board, a higher minimum will be less of a burden.1 In the graph below, I've projected what the median hourly wage might be in a handful of cities across the state once the new minimum for fast food workers comes into effect. (I'm assuming 3.5 percent annual wage growth starting in 2016, which is fairly generous.) In New York City, $15 in 2018 would still amount to more than 60 percent of the metro area's median wage, which is high. In cities like Buffalo and Binghamton, $15 by 2021 would be worth more than 70 percent of the area median, which is extremely high.

median_wage

Of course, New York's politicians seem well aware that New York City can probably support a higher wage structure than other parts of the state. Cuomo himself proposed a bill that would have boosted the minimum in the five boroughs to $11.50 and $10.50 elsewhere. The Democrat-led assembly passed a bill that would have set the minimum at $15 per hour in the city and its suburbs, and $12.60 elsewhere. But Republicans in the state Senate refused to cooperate. So Cuomo turned to the wage board, which only has the power to recommend pay levels in individual industries, like fast food.

Which brings up the next problem: Not all of fast food will be affected by this rule the same way. In order to soften the blow on small businesses, the $15 minimum will only apply to restaurants with more than 30 locations. Thirty locations, however, is not that small. Assuming New York McDonald's and Burger King franchises raise their prices in response to the hike, the state will perversely be pushing cost-conscious customers toward eateries that can pay their workers less, including, under these rules, medium-sized chains. You might argue that forcing pay up at national chains will have a cascade effect that increases pay across the region's economy as businesses compete for workers. But that's somewhat hypothetical, and would undercut the whole point of the exemption. Basically, you're either rooting for the 30-or-more rule to fail, or you're implicitly comfortable giving businesses that hand their workers relatively low pay a business edge.

Long story short: Of all the minimum wage experiments popping up around the country, this might just be the worst.

1 Regular readers will note that I've yammered about this particular point a number of times. I plan to continue.