Minimum Wage

New York's Crazy Plan to Experiment With a $15 Minimum Wage for Fast Food Workers

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Patja / photo on flickr

Somehow, over the last few years, the conventional wisdom about raising the minimum wage has moved from "it would probably reduce employment" to "it's a great idea that (probably) wouldn't cost any jobs at all." Or, as White House economic adviser Jason Furman said last year, "zero is a perfectly reasonable estimate of the impact of minimum wage on employment."

Furman, of course, was careful enough to say that zero was "a perfectly reasonable estimate," leaving open the possibility that other, higher estimates might also be reasonable. And Furman's remark was in response to a Congressional Budget Office (CBO) report looking at the consequences of raising the federal minimum wage from its current $7.25 an hour to $10.10—a report that, it should be noted, found that such a hike would most likely cost about 500,000 jobs.

But careful-enough remarks like Furman's from prominent left-leaning wonks have created an environment where less-careful Democratic politicians act as if they can be entirely confident that minimum wage hikes, even those much higher than the one Furman and the CBO were discussing, have no meaningful consequences for employment. 

Look at Seattle. When the city embarked on its first-of-a-kind experiment with raising the city's minimum wage to $15, one of the background papers the city commissioned led its conclusion section by noting a seminal 1994 study finding that a minimum wage hike on fast food restaurants in New Jersey had no "no measurable negative impact on employment" when judged against fast-food restaurants just across the Pennsylvania border, and by further noting the "large body of research" that has built upon that work. The first line of the executive summary's section on the "effects of minimum wage laws on businesses" says that "economists have increasingly recognized that raising the minimum wage does not automatically mean that employment will fall." True, the paper also goes on to note that the existing research on minimum wage hikes has some limitations. But the emphasis is clearly on the data suggesting that a higher minimum wage will have great benefits at a minimum cost. It's difficult to avoid the sense that the report was meant to encourage Seattle to adopt a higher minimum wage. 

So it's worth highlighting how little the existing research tells us about the likely outcomes of the sort of minimum wage hikes now being considered around the country. A governor's panel in the state of New York, for example, recommended last week that most fast-food chains in the state be required to pay workers $15 an hour over the next few years. It's generally expected that the proposal will soon be implemented.

Yet as today's New York Times reports, there's little precedent for this sort of hike, and thus little real-world data to suggest its effects. The studies that have looked at minimum wage hikes and found minimal effects on employment tell us very little about hikes this large.

The move would lift the wage floor for such fast food employees to about 60 percent of the average worker in New York City, which, as the Times notes, "lies at the outer limit of the country's historical experience with the minimum wage."

Outside of New York City, where fast food restaurants would have until 2021 to comply with the new policy, the effect would be even more dramatic: "The minimum wage for fast-food workers could rise to 75 percent or more of the wage for a typical worker in a number of cities across the state, like Binghamton, Buffalo and Utica," the Times story states. "There is little precedent for an increase of this magnitude." This isn't something that anyone has tried, or studied, before.

In addition, as Jordan Weissmann notes in a good piece for Slate, the proposal would only apply to fast food chains with 30 or more chains. That adds another layer of complexity. As Weismann writes, the rule will in some sense reward restaurants that pay less by giving small chains "that hand their workers relatively low pay a business edge." 

At minimum, it seems likely that the policy will lead to unpredictable, and unintended, consequences. Will large fast-food chains pull out of upstate New York entirely, or will they just charge more? Will this create a market for low-paying, inexpensive boutique fast-food chains that never expand beyond 29 stores? Investors will have an obvious incentive to put their money into smaller chains, but it may also turn out to be that small chains are difficult to launch once you move far from New York City, and that the fast-industry—and the employment that goes with it—declines as a result. 

The point is that the evidence so far tells us relatively little about the likely results of New York's policy experiment. This is a crazy, badly designed, unpredictable plan, even if you're inclined to think there's some wiggle room to raise the minimum wage without a lot of job loss. (Notably, there's still a fair amount of solid research suggesting that minimum wage increases do cost jobs.) No matter what, I think it's safe to say that the results, whatever they are, won't be exactly what was intended, or expected, and that the negative consequences—to consumers, to workers, and to business owners—could be significant.

Perhaps the worst possible consequence would be for other cities and states to quickly follow with large minimum wage hikes of their own before the results of these first few policy experiments are in. (A ballot measure lifting the minimum wage to $15 is gaining traction in Washington, D.C.) Although creating a model for other states to copy certainly seems to be New York Gov. Andrew Cuomo's idea. Announcing the wage hike plan, he said that "when New York acts, the rest of the states follow." In this case, let's hope they don't. If the idea is to follow the evidence, then other potential minimum wage hikers should probably wait until there is some.