Congress is debating whether to raise the federal minimum wage above $7.25 an hour, where it’s been since 2009. While the outcome of the negotiations remains uncertain, President Joe Biden supports a $15 minimum wage. Some Republicans, like Senators Mitt Romney of Utah and Tom Cotton of Arkansas have proposed increasing it to $10 an hour.
And while any increased would be phased in over several years, the wage floor is likely to move up after being stuck for more than a decade.
More than half of the states – 29, to be exact – use the federal minimum wage; the rest set their own rate. New Jersey’s minimum wage is currently $12 an hour, having increased from $11 an hour on Jan. 1. In 2019, Gov. Phil Murphy signed a bill that will increase the statewide minimum wage to $15 an hour by 2024, fulfilling one of his campaign promises. At the time the rate was $8.85 an hour, before increasing to $10 an hour July 1 of that year.
There are slower phase-ins for seasonal workers – such as those at summer camps and boardwalks – and businesses with less than six employees.
Tipped workers are paid below minimum wage and will continue to be as their base pay increases from $2.63 an hour in 2019 to $8.04 an hour in 2030.
Employers – typically restaurant owners – have to make up the difference if the tips do not bring them above the standard $12 hourly rate. Congress is considering proposals to remove sub-minimum wages entirely.
At face value, a $15 national minimum wage would not affect New Jersey, since the state is on a path to reach that amount. But in a competitive and tightly woven Mid-Atlantic economy, the hourly rate and cost of doing business could very much matter.
Several of New Jersey’s neighbors currently require a lower hourly rate: Pennsylvania’s minimum wage is the federal $7.25 an hour, while Delaware’s minimum wage is $9.25 an hour.
“It would frankly help with our lack of competitiveness today because our cost of labor is a lot more expensive,” said Michele Siekerka, president and chief executive officer of the New Jersey Business and Industry Association.
Mike Egenton, executive vice president for government relations at the New Jersey Chamber of Commerce, agreed. “It levels the playing field” with other states that have a lower minimum wage, he said.
But economists like Dean Baker from the Washington think tank the Center for Economic Policy and Research contended that states with major deltas in their minimum wage have little effect on each other’s economies.
“Many economists … thought there would be a big cross-border effect with a state with high minimum wage next to one with a low one,” Baker said in an email. “This could mean that people from New Jersey go to restaurants and other retail outlets in Pennsylvania to take advantage of lower prices made possible by a lower minimum wage,” Baker said in an email.
And indeed, that scenario has been a concern of many restaurant owners, especially during a year when the added cost of a wage increase has been worsened by lower profits because of reduced capacity, and increased expenses from COVID-19 safety protocols.
“It’s going to come through on price [increases] to the customer,” said Kirk Ruof, founder and CEO of Turning Point Restaurants, which operates a dozen establishments in New Jersey and several others in Delaware and Pennsylvania.
A higher tipped wage means more money that the employer is on the hook for, Ruof said. And on top of that, the cost of bringing more staff on board as COVID-19 restrictions are eased, with a higher state minimum wage, means even more expenses for his eateries. “When you look at any tipped industry, whether it’s salons … any business that gets tipped, where they would take the tipped credit … those specific businesses are going to have to raise their prices,” he said.
Still, Baker was skeptical about just how much the potential price increase would affect spending habits in say New Jersey and Pennsylvania. “The impact of the higher minimum wage on prices is just not very large,” he continued.
“Suppose New Jersey’s minimum wage causes McDonald’s hamburgers to cost 2% more than Pennsylvania. Are many people going to cross into Pennsylvania to save 4 cents on their burger?”
Economically, a national minimum wage of $15 an hour could boost the spending power of low-wager workers by $107 billion, said Nicole Rodriguez, research director at the liberal think tank New Jersey Policy Perspective. “While most of New Jersey’s minimum wage workers will reach $15 before the federal proposal would be fully phased in, this policy would still benefit workers on slower phase-in schedules, like farmworkers and workers at small businesses. And by phasing out the tipped wage, the federal minimum wage proposal would also bring parity to all sectors of the workforce,” she said in an email.
Academic literature on how a higher minimum wage would affect employers is conflicting. A February report from the Congressional Budget Office, for example, found that a minimum wage increase would lift roughly 900,000 Americans out of poverty. But, the report maintains, it could still cost 1.4 million workers their jobs.
On the other hand, a January report from the National Bureau of Economic Research found that minimum wage increase could increase employment for young adults and teenagers, and those with lower education levels.
The effect on interstate competition among businesses in different states if the minimum wage reaches $15 an hour is even murkier and less intuitive, suggested David Cooper, a senior analyst at the Economic Policy Institute in Washington D.C. Once the wage reaches $15 an hour in both Pennsylvania and New Jersey, for example, businesses in either state might be hesitant to increase their pay above the minimum.
“They’re going to face wage pressures but they may be reluctant to actually pull the trigger and lift pay because they can’t be confident that the competitors are doing the same thing,” he explained. “They may be looking at their bottom line and say ‘I could raise pay but I have to raise prices a bit, I don’t want to be undercut by the guy down the streets’.”
That’s despite higher quality work and “more efficient staffing levels” that he says come as a result of businesses raising their pay.
Baker suggested businesses would still ultimately take that route, because more workers might “make the trip” to a higher-paying job in another state. Consider a situation in which Pennsylvania’s floor is $10 and New Jersey’s is $15.
“This will have the effect of raising pay in Pennsylvania, since restaurants in adjacent counties will need to compete for workers,” Baker said. “The result is that any gap in prices between a state that raises its minimum wage, and an adjacent one that doesn’t, is likely to be very limited.”
Many businesses in New Jersey have already pushed their wages toward $15 an hour, so they feel confident that they can absorb those costs, as well as any costs of doing business in the era of COVID-19.
Chris Bruner, president of American Construction in Cherry Hill, said the company has already raised its wages to $15 an hour for its nearly 60 workers. “What we found is the better we treat our employees, the higher the level of productivity is, and the more profitable our company is as a result,” added Bruner, whose business specializes in roofing, siding and windows replacement.
And Erica Gillespie, vice president of operations at Ani Ramen, which operates six eateries in North Jersey, said the chain has been able to pivot to take-out during the pandemic and cut down menu items to those that are more take-out friendly. As a result, she said, their servers have been shifted to staffing pick-up services, and the company has actually had to expand its staffing levels during the pandemic.
But Marilyn Schlossbach, who owns restaurants in Asbury Park and elsewhere on the Shore, worried about the impact of a minimum wage increase, federal or state, could have on her establishments given how the tipping system currently works. “The tipped employees don’t want it, because what’s going to happen if they’re being paid $15 an hour, the tipping structure is going to get changed,” said Scholssbach, an executive board member with the New Jersey Restaurant and Hospitality Association.
“My bartender who’s used to making $50 an hour” from tips “is not going to work for $15 an hour,” she added.
Ruoff said he worried restaurants may move away from the tipping structure entirely should tipped workers have to earn $15 an hour, and instead may include a fixed gratuity amount as part of the bill.
But Rodriguez disagreed, suggesting that tipped workers “are more likely to have their wages stolen because their employers don’t always make up the difference.”
“[T]heir pay is reliant on the shifts their bosses assign them and the generosity of their customers. This troubling power structure puts tipped workers at greater risk of both wage theft and sexual harassment,” she said.