Commentary

Minimum Wage, Including in N.J., Could Mean Maximum Damage

President George W. Bush signed a bill in May 2007 that would eventually increase the federal minimum wage substantially but gradually, with the last hike in the summer of 2009 after he left office. National unemployment then was only 4.4 percent, and 22 states already had a higher minimum. So, the damage was not felt until later — particularly in New Jersey.

The federal minimum wage rose 12 percent on July 24, 2008, and by another 10.7 percent to $7.25 an hour a year later. By 2010, this had become a serious problem, made even more serious in suicidal states with even higher minimums such as California, Nevada, Florida, Illinois, Rhode Island and Michigan. As it turns out, however, the higher federal minimum wage had a uniquely vicious impact on New Jersey.

Out of nearly 3.8 million people working in New Jersey in 2010, more than 57 percent were salaried and, therefore, unaffected by the minimum wage. Among the remaining 1.6 million who did work for an hourly wage, only 31,000 (1.9 percent) were earning the minimum wage, according to a Bureau of Labor Statistics report.

But the small number of workers earning the minimum wage greatly understates the impact. Why? Because New Jersey had 82,000 people earning less than the minimum wage in 2010 — up from just 25,000 in 2007. In other words, after the last hike in the minimum wage, an astonishing 5.2 percent of all New Jersey workers supposedly affected by the law ended up earning less than the minimum wage, sometimes much less. That 5.2 percent figure was the second-highest in the nation, behind only Louisiana (5.9 percent). Jobs that pay less than the minimum far outnumber those that pay the minimum, particularly in New Jersey.

How could so many people be earning less than the minimum wage? The reason is that there all sorts of exemptions in federal and state minimum wage laws that act as a safety valve to minimize job losses that could otherwise prove politically embarrassing.

At the federal level, for example, the minimum-wage law does not apply to newspaper deliverers, companions for the elderly, outside salesmen, babysitters, etc. Small farms are exempt, and so are seasonal amusement or recreational facilities. In New Jersey, employees at nonprofit or religious summer camps are also exempt.

There are numerous partial exemptions, too. Colleges and other nonprofit organizations can pay 85 percent of the minimum wage. Retail or service stores and farmers can also get a permit to pay full-time students 85 percent of the minimum wage, or 75 percent for vocational school students.

Being employed below the minimum wage must be better than being unemployed above the minimum wage or there would not be 82,000 people in New Jersey alone working below the minimum wage. The trouble is that most exempt jobs offer no training, no benefits and no future. Shrinking the number of jobs among larger, more visible employers by raising their minimum wage will result in trapping more unskilled young people in dead-end jobs where the law is not binding.

Not content with being No. 2 in the nation in below-minimum-wage jobs, the Legislature appears determined to become No. 1. A plan by Assembly Speaker Sheila Oliver (D-Essex) and Senate President Stephen Sweeney (D-Gloucester) would lift the state minimum wage by another 17 percent, to $8.50 an hour and keep raising it every year to keep pace with inflation.

We don’t have to guess what this would do because we saw what happened last time. If New Jersey is reckless enough to raise the minimum wage by 17 percent at a time of high unemployment, tens of thousands more young or unskilled people will be forced to accept second-rate jobs not covered by the minimum wage — if they find work at all.

Alan Reynolds a senior fellow with the Cato Institute, is the author of Income and Wealth (Greenwood Press 2006).