In January, New York City Comptroller Scott Stringer made the case to the State Senate that a $15 minimum wage would be good even for “smaller businesses.” He pointed to the example of Brooklyn Brine, “a pickle manufacturer in Sunset Park [that] pays workers at least $16 an hour.”
It’s telling that an artisanal pickle maker that prides itself on “hand-crafted, non-GMO, Kosher-certified” fare and a “spicy maple bourbon” flavored variety that sells for $10 per jar is Stringer’s model small business. Notably, he didn’t mention the numerous Ecuadorian restaurants, Chinese dumpling houses, and Mexican coffee shops in the same predominantly immigrant neighborhood.
Indeed, companies like Brooklyn Brine, which sells unique products to an upper-middle-class clientele, will probably do just fine now that the $15 minimum wage is a reality in New York State. (The increase will take full effect in the Big Apple on December 31, 2018.) It’s all the other stores and restaurants in Brooklyn’s Sunset Park that could theoretically be wiped out.
They probably won’t be, however, for a simple reason that neither Stringer nor just about anyone else debating the $15 minimum’s impact is talking about: Enforcement is weak.
Ensuring that New York businesses comply with government-mandated wage floors falls primarily to a dysfunctional and understaffed division of the state government. Many businesses don’t heed the current $9 minimum; when the rate rises to $15, the ranks of the noncompliant will swell.
The prohibition of low-wage work will destroy lives despite its futility. Some small businesses will attempt to follow the rules and go under; others will find ways to get by with fewer workers. Among the noncompliant, those unlucky enough to get caught will face ruinous fines, and the city’s shadow economy will expand.
Yes, the $15 Minimum Wage Is Bad For Small Businesses
First, let’s review the evidence that the $15 wage floor poses a mortal threat to many small businesses. In the New York City Metropolitan Area (which incorporates parts of New Jersey and Westchester), occupations with a median hourly wage below $15 include waiter ($10.66), cashier ($9.40), retail salesperson ($10.30), restaurant cook ($12.72), and stock clerk ($10.79). (These figures account for tips.) In other words, restaurants and retail stores, many of which are hand-to-mouth operations, could see a roughly 50 percent increase in their labor costs.
Most vulnerable are immigrant-owned businesses because they tend to open stores, such as nail salons and dry cleaners, with razor-thin profit margins. When you lack proficient language skills or a college degree, running a struggling store or restaurant beats the alternatives—such as working at one.
The impact of the $15 minimum will be amplified by other New York State labor regulations already in place. The “spread of hours” rule dictates that employees who work more than 10 hours per day are entitled to an additional hour of pay thrown in. When a worker puts in more than 40 hours in one week, the hourly minimum jumps to time and a half, which will rise to $22.50.
The $15 minimum will also mean stores and restaurants will have to spend more for their workers compensation insurance, which is based on the size of their payrolls. In addition, thanks to the same law that brought the $15 minimum, by 2021 every New York State businesses will be required to offer 12 weeks of family leave at 67 percent pay. (In a concession to the restaurant industry, the new law will increase the portion of a waiter’s wages that can be covered by tips from a fourth to a third of hourly pay, or $5.)
These small businesses can try raising their prices to cover the spike in their labor costs, but depending on how badly customers want what they’re selling, sticker shock might lead to falloff in demand and even smaller revenues. There will also be a domino effect in noncompliance: If one retailer flouts the $15 minimum to keep prices down, its competitors will face pressures to follow suit or be undercut.
Even economists who favor the minimum wage worry that New York and California (which just passed a similar law) have gone too far. Princeton’s Alan Krueger, former chair of President Obama’s Council of Economic Advisors, co-authored a highly influential (though much criticized) 1993 paper arguing that a minimum wage increase from $4.25 to $5.05 didn’t destroy jobs at fast food restaurants in New Jersey. Last October, Krueger wrote in the New York Times that the $15 minimum brings us into “unchartered waters” with the “risk of undesirable and unintended consequences.”
Wage Laws Are Already Widely Ignored
Many restaurants and retailers already flout state wage and hour laws. A 2008 survey by the National Employment Law Project (NELP) of 1,432 workers in New York City found rampant minimum wage violations particularly in service sector businesses. Seventeen percent of restaurants, 32 percent of grocery stores, and 53 percent of laundry and dry cleaning establishments paid their workers less than the minimum wage. Immigrants, especially those who came to the U.S. illegally, were more than twice as likely to be paid below the state-mandated wage floor than the native-born workers.
When the NELP survey was conducted, the minimum wage was $7.25. Once it reaches $15, businesses will have a far more compelling reason to ignore the state-mandated wage floor.
So what’s the risk of getting caught? The government has four ways of rooting out minimum wage scofflaws.
First, the U.S. Department of Labor (USDOL) investigates and sues New York businesses for labor violations. But the agency can only enforce the state-based $15 minimum for overtime hours. With straight time, the USDOL is limited to suing companies for paying less than the federal minimum wage, which is $7.25 hour.