New Jersey Minimum Wage Hikes Will Harm Small Businesses, Workers

Published October 21, 2014

Despite already being one of 23 states with a minimum wage higher than the federal minimum wage, New Jersey will be hit with another increase of 1.59 percentage points come January. Small-business owners say the rate hikes will suppress job creation, will lead to fewer hours for current employees, and will result in an increase in costs for consumers.

Last year, Garden State voters approved a proposal to increase the mandated wage by nearly 14 percent, to $8.25, plus annual increases tracking the cost of living. When the latest increase is enacted, New Jersey will have a minimum wage of $8.38 per hour, or 15.6 percent above the federally mandated minimum.

During the debate over the minimum wage hike last year, business leaders said they feared an increase would hold down job creation. In June 2013 the National Federation of Independent Businesses (NFIB) conducted a study demonstrating the New Jersey wage increase referendum would put 30,000 people out of their jobs, with more than 59 percent of those jobs being sacrificed from the small-business sector.

Costly Decision

The increase in the cost of labor will also raise costs for consumers, says James Blake, chief financial officer for the Morey Organization, a group operating amusement parks, hotels. and restaurants in New Jersey.

“The cascading effect of raising the minimum wage will increase our operational costs,” he said.

He said the cost increases would hinder the company’s ability to “run one of the Jersey Shore’s economic engines at affordable prices for families.”

In 2013, New Jersey Gov. Chris Christie proposed a graduated increase of the minimum wage by a total of $1 over three years and eliminating the automatic raises thereafter.

He said the legislation had to be changed to achieve that, because promoting benefits for one group at the expense of others hinders economic recovery.

Concerned for Businesses’ Survival

Christie said the legislation as drafted would be economically devastating.

“I am convinced that many of New Jersey’s small businesses would not be able to survive the minimum-wage increase and automatic annual raises,” he wrote in the letter explaining his decision.

Christie continued, “these business owners, facing added expenses in the form of payroll, taxes, and the costs of recovery, will be confronted with three dire options: lay-off workers, raise prices, or leave New Jersey.”

Greg Lawson, policy analyst for the Buckeye Institute for Public Policy Solution, concurred with Christie’s claims, saying that states such as New Jersey—and Ohio, one of 9 states with automatic wage hikes scheduled to occur next year—are actually hurting workers and the economy by enacting such policies.

“For decades, the consensus among economists was that a hike in the minimum wage would lead to fewer jobs pure and simple. While there are revisionist economists attempting to argue to the contrary, the most reliable evidence and research continues to validate this fact,” he said. “This is bad news for small businesses unable to absorb these costs, but it is even worse news for those at the lower end of the economic ladder.”

Hurting in the Name of Helping

Academic studies confirm the accuracy of this criticism of minimum-wage hikes. In 1995, University of California-Irvine economics professor David Neumark and Federal Reserve governor William Wascher analyzed payroll records of fast-food restaurants in New Jersey counties and neighboring counties across the state line with Pennsylvania, to determine what, if any, effect New Jersey’s 1994 minimum-wage increase had on entry-level employment trends.

They found confirmation of the common wisdom that increasing the cost of entry-level labor results in increased unemployment and forces entry-level workers—often, the young or ethnic minorities—to seek employment in other geographic areas with fewer market distortions.

Unfortunately for such upwardly mobile workers, New Jersey is not the only state planning minimum wage hikes. Voters in all five states—Alaska, Arkansas, Illinois, Nebraska, and South Dakota—approved minimum wage increases.

Rusty Weiss ([email protected]) writes from Troy, New York. 

Internet Info: 

“The Effect of New Jersey’s Minimum Wage Increase on Fast-food Employment: a Re-evaluation Using Payroll Records,” David Neumark and William Wascher, National Bureau of Economic Research,