Upstate New York Can't Afford $15 an Hour
In case you hadn't heard, New York state is raising its minimum wage to $15 an hour -- but only for fast-food workers at places with more than 30 locations.
At first glance, this seems bizarre. Why fast food? Why places with more than 30 locations? At the New York Times, Josh Barro notes today that these sorts of policies create substantial distortions -- radically altering the market for unskilled labor, for example, and potentially discouraging chains from growing beyond 29 locations. They'll also put existing fast-food outlets at a disadvantage to smaller chains, which sounds great when you think about all those McDonald's Corp. executives with their massive bonuses, and less great when you realize that franchising is the way a lot of minorities and immigrants climb the ladder to economic prosperity. Even economists who support a high minimum wage favor an across-the-board increase, not targeting one industry.
But although the economic logic may be bad, the political logic may be good. And not just because the chattering classes despise fast-food franchises. Raising the minimum wage for the fast-food industry can be done by a panel appointed by Governor Andrew Cuomo, bypassing the legislature, which has balked at a broader increase. Targeting the fast-food industry allows the governor to deliver a wage increase for a vocal constituency without a bruising legislative fight he might not win.
This is a pity, because the legislators were quite right to refuse to pass such a big wage increase across the state. A $15 minimum wage would probably cause some job loss in the New York City area, but it would be devastating to upstate, where wages are much lower. The median hourly wage for New York state is only $19.65, meaning that fast-food workers will now be paid 75 percent of the median for doing work that involves so little skill that it is frequently performed by teenagers who aren't old enough to drive. And in the poorer regions, that disparity is likely to be even more stark.
For comparison purposes, at the upstate nursing home where my grandmother resides, a licensed practical nurse starts at less than $19 an hour -- a job that requires one to two years of specialized schooling. In that area, as in many parts of upstate, health care and the school system provide many of the best jobs, since the region has been in near-continuous decline since the opening of the St. Lawrence Seaway put the final nail in the coffin of the once-mighty Erie Canal. In those regions -- where fast food also provides most of the dining options -- it's hard to see how the local population can afford to support franchises paying their workers almost as much as one of the county's big employers pays its skilled staff. The net result will not be more wages flowing to the local population, but the loss of even more jobs. And while you may be tempted to say, "Those aren't good jobs," they're a heck of a lot better than no job at all.
It's not surprising that Cuomo is going forward with this plan despite the problems it will cause for large swathes of the state; this is about par for the course when it comes to Albany's treatment of the northern and western portions of New York. I've joked that New York state is "West Virginia lashed to Connecticut," but economically, that description is not far off. The rural north is so economically depressed that prisons are fondly regarded as sources of employment, and the deindustrializing western portion of the state has many of the same problems, plus large brownfield areas from long-departed factories that no one can afford to clean up, and a structural overhang of buildings, government programs and people left over from flusher times. The more young people depart in search of work elsewhere, the worse the problems become, as the depleted tax base struggles to provide for the old and the poor who have been left behind.
It's not fair to say that these problems are all caused by Albany. Upstate New York is a cold, snowy place far from the coast, and those places have been declining for decades. On the other hand, it is completely fair to say that Albany has made the problem much worse, by layering on taxing, spending and regulatory mandates that may be affordable in a downstate region driven by easy-flowing financial industry profits, but are catastrophic in a region struggling to hold onto its last manufacturing jobs. And Albany's policies make it impossible for upstate to leverage the assets it does have -- such as an incredible number of colleges graduating educated workers, and lower wages that could potentially attract new businesses -- into some sort of recovery.
To take just one example, New York state has a law that mandates allowing government workers to continue to work under their old contracts, including automatic step-increases, if a new one can't be negotiated. Downstate, this doesn't matter much, because eventually workers have to come back to the table for more wages as their cost of living increases. Upstate, however, where the cost of living is absurdly cheap, workers can keep gold-plated health and benefits that were installed when the cost of living was lower, and the governments were flusher. Tax base won't support it? Too bad; that's not Albany's problem. Periodically, the state enacts transfers to stave off putting more cities into the government version of receivership. But these only alleviate the worst of the misery; they do not give the economy room to recover.
This is just one example, however; the problems are all over the place, from workman's comp to the price of electricity for commercial enterprises. None of them is devastating by themselves, but collectively, they're why New York state routinely ranks near the bottom when it comes to business-friendliness. If you're a financial or "creative-class" firm deciding where to put your new headquarters, you frequently suck it up and move there anyway. But if you're a manufacturing firm or a logistics business, you probably go somewhere less expensive. Albany couldn't fix all of these problems, but it could fix a lot of them. It could certainly refrain from making things worse.
Of course, no set of policies is going to be good for every citizen of a place; this is the price of living in a large and diverse democracy. But northern and western New York account for most of the state's territory, and a whole lot of its people. And it would probably have a lot more people in it if Albany weren't so blithely unconcerned with its fate.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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