Cuomo’s Costly Fast-Food Wage Hike is Based on Bad Data and Faulty Logic
Last week, a special fast-food wage board formed by Gov. Cuomo held its final hearing before it will decide whether or not to raise the minimum wage specifically for fast-food restaurants. In the governor’s related Op-Ed calling for New Yorkers to close the income inequality gap, he rightly argues for lifting up the bottom — not pulling down the top.
“Higher minimum wages put young unskilled workers at risk of unemployment and risk shrinking the economic pie in an attempt to redistribute it.”
His further call for creating a higher living wage in the fast-food industry, however — perhaps as high as $11.50 or even $15 an hour, above and beyond the $8.75 an hour required by law — will do little to create that mobility in the real economy. Higher minimum wages put young unskilled workers at risk of unemployment and risk shrinking the economic pie in an attempt to redistribute it.
First, who actually earns the minimum wage? Cuomo’s citation of data would have you believe it’s mostly adult primary earners. A closer look at the data shows that it’s not. In fast food specifically, the governor’s own citations show 60.7% of workers are age 24 or younger — admittedly not all teenagers, but still college-age kids and entry-level workers. Across all industries, nearly two-thirds of workers earning less than $9.50 per hour are second or third earners living in middle-class households.
Second, Cuomo cites overseas examples of high minimum wages in Australia and France to bolster his case. Again, a closer look at the data undermines his argument. Those overseas examples either exempt young workers or adversely affect their employment opportunities through automation.
Australia’s minimum wage phases in with age, and, as a result, the fast-food industry there depends overwhelmingly on young, cheap entry-level workers, much like in the United States. France’s high minimum wage is binding on young workers, but France also happened to be the primary European country chosen for the rollout of McDonald’s automated self-ordering kiosks.
Finally, the governor makes his case by arguing that New York’s taxpayers subsidize the industry’s low wages through welfare and food stamps.
The facts show they do not. Only subsidies that increase individuals’ incentive to work at the going wage actually function as a subsidy for work. Traditional welfare and food stamps reduce the incentive to work at the going wage — meaning none of the benefits are passed through to employers.
“France’s high minimum wage is binding on young workers, but France also happened to be the primary European country chosen for the rollout of McDonald’s automated self-ordering kiosks.”
An actual wage subsidy, like the federal Earned Income Tax Credit, does increase labor supply — but this effect is a plus, not a minus. Subsidizing marginal workers to join the labor market provides them a foothold for further growth. It enables new workers to establish a reliable employment history, preventing the stigma of long-term unemployment.
This employment-boosting assistance is one of the most valuable benefits of the EITC, in sharp contrast to the minimum wage.
The goal of guaranteeing all working New Yorkers a decent material life is a noble one. But Cuomo’s proposal to hike the minimum wage in a specific industry is neither an effective nor a fair way of getting there.
It’s ineffective because it reduces the prospects of young, low-skilled workers hoping to grab the first rung of the economic ladder. It’s unfair because it asks a small group of business owners — in this case, often franchisees, not even a large, multibillion-dollar corporation — to pay the tab for society at large.
Cuomo wants to show that he respects the workingman. That’s a good thing. But he also has to show that he respects the data. Most low-wage workers are students, entry-level workers or supplemental earners in middle-class households. And minimum-wage hikes aren’t effective at reducing poverty.
Expanding or building on the federal Earned Income Tax Credit — as New Jersey Gov. Chris Christie recently recommended with a state-level EITC — would be a better way to get more people working, grow the economic pie and spur real income growth from the bottom up.
This piece originally appeared in New York Daily News.
This piece originally appeared in New York Daily News