INSIGHTS: MINIMUM WAGE … SO IF THEY JUMP OFF A BRIDGE, NJ SHOULD FOLLOW?
By Guest Columnist Linda Doherty:
President and CEO of New Jersey Food Council
Growing up in Brooklyn and following other kids into some benign mischief, my Mom would say, “So if they jumped off a bridge, you should follow?”
Today, I clearly see the wisdom in my Mom’s sentiment as NJ is again considering a dramatic increase in the minimum wage to $15. Just recently, both California and New York approved a significant incremental minimum wage increase to $15. Both initiatives were negotiated with union leaders without any participation or input from the business community, the payers of the wage. How ironic that labor officials, who would never stand to be outside the door of a negotiation, had no issue keeping the paying party out of the discussion.
In Massachusetts, the Labor Department just revealed the retail and hospitality sectors experienced its longest stretch of net job losses since their wage hikes to $9 in 2015 and $10 in 2016. The state lost jobs in the grocery sector and the chairman of a large chain of supermarkets warned that the minimum wage hikes would be difficult to bear. In Washington DC, a higher minimum wage resulted in fewer hours of work for hourly employees and a contraction in the pay scale. These impacts were recently chronicled by Investor’s Business Daily.
NJFC is adamantly opposed to a proposal by NJ Democratic leaders which would significantly increase the state’s minimum wage by a whopping 79 percent! This legislation would increase the wage from $8.38 per hour to $10.10 per hour on January 1, 2017, and increase the wage annually from 2018 to 2021 by the larger of $1.25 per hour or the sum of $1.00 per hour plus any increase in the CPI-W. Annual increases will be tied to the CPI-W after 2021.
This is a HUGE and potentially unsustainable cost increase on our members. Additionally, employers would have higher costs resulting from compression. In some cases, collective bargaining agreements contain provisions for raises which are triggered by minimum wage increases.
Companies would be forced to make tough choices including cutting the workforce, reducing hours or scaling back benefits. Our industry is facing unprecedented competition from online and big box stores, and some large chains have been unable to survive the challenges.
Minimum wage increases reduce access to entry level jobs, particularly in retail jobs dependent on teens who live at home, seasonal workers and retirees who are supplementing their income. These are not breadwinners supporting a family.
NJFC members currently provide generous health benefits, savings plans, tuition reimbursement and other fringe benefits that significantly add to labor costs. These compensation costs should be included in the calculation of the wage rate.
This proposal would lead to significantly increased food prices that would hurt seniors on fixed incomes who would be forced to pay higher prices but would not see a corresponding raise. Their purchasing power would drop drastically.
Even worse, Democratic leaders have warned Governor Christie that if he fails to approve their proposal, they will force it to the ballot box. As we argued in 2013 when the minimum wage was considered at the polls, it is terrible public policy to place a labor contract on the ballot.
We implore our legislative leaders to consider the impact in Massachusetts and Washington DC and wait to see the results on retailers in California and New York before we jump off that bridge too!
ON THE ECONOMY: STOP
By John Dunham:
Managing Partner, John Dunham & Associates
Stop right Now, thank you very much. I need somebody with the human touch. Hey you you always on the run, gotta slow down baby, got have some fun. So goes the chorus from the 1997 Spice Girls song, Stop. Written by the group members with Paul Wilson and Andy Watkins this song, with its disco/Motown beat, really has very little depth. The same is true of the American economy.
Despite the wishful thinking from Administration officials and orthodox economic pundits, the US economy grew by an annualized rate of just 0.5 percent in the first quarter of 2016, according to the advance estimate released by the Bureau of Economic Analysis (BEA). This is down from a very weak 1.4 percent increase in the 4th quarter of 2015. While it is important to note that the BEA’s initial estimates often see gigantic adjustments in the following releases, the simple fact that the US economy has grown by just 15 percent since hitting bottom in 2009. Much of this growth was simply due to government borrowing over this period, generating no actual economic activity.
The first quarter numbers show just why the economy is in so much trouble. Gross Domestic Product (or GDP) is a measure of all of the production in the US economy over a given period of time. The BEA uses spending as a proxy for production since there is a general accounting tautology between the two. But all spending (or for that matter all production) is not the same. Some parts of the GDP matter, while others are much less important.
Looking at the changes over the past few quarters, Consumer Spending (which is a proxy for production) has been driving economic growth. Personal consumption expenditures are always weak in the first quarter, but looking over the past year, in not one quarter was PCE growth higher than in the same quarter in the prior year. In other words, production is falling year over year. One can expect much better numbers in Q2 but this does not mean that this aspect of the economy is not grinding to a hault.
The most important component of the GDP report is what the government calls Private Domestic Investment. Businesses, and consumers for that matter, invest in new plant, equipment and even houses in order to provide for future production and growth. Investment has not been consistent over the recovery, but in the past three quarters it has been falling as a percentage of GDP. This is not a good sign for the future.
The third important element in the GDP calculation is net exports (exports less imports). A country that is exporting is producing more than it can consume and is therefore saving for the future. The American economy is generally a net importer for a number of monetary reasons and this is not something to be overly concerned about. However, even as commodity prices have fallen (and the US is a large importer of commodities), the share of exports to GDP has fallen for over two years. Again Q1 is always a laggard for exports, and this year is no exception, but the trend is not a positive sign.
There are two other major categories in the GDP calculation, and seeing growth in either of these is generally not a good signal. The first is inventories. Yes, the BEA considers warehouses full of unsold stuff to be a positive for the economy. The good news here is that inventories are falling as a percentage of GDP. Keynesians see this as a signal of economic growth, though it probably has more to do with the ability of firms to manage inventory better.
The last component is government spending. Again, the BEA considers borrowing to be beneficial to the economy since government spending is driven by borrowing. Over the past year, and continuing to Q1, government has been becoming a larger and larger share of the economy. As I mentioned above, this is a major reason why the economic cycle has generated very little real growth, and something that will need to change in order to get the economy moving again.
I seriously doubt that Scary, Sporty, Baby, Ginger or Posh spent a lot of time thinking about the economy – though after making millions of dollars they may do so now. But with the economy in full stop in Q1 and slowing down overall, I am not sure baby gonna have some fun for much longer.
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