By Carla J. Sonntag
President and Founder, New Mexico Business Coalition
New Mexico Business Coalition's recent research into a minimum wage hike has determined that it will only hurt our NM businesses and their employees. And if you're an employer paying above minimum wage and think it won't affect you, think again!
Bills introduced to date in this legislative session would increase wages from $8.40 to as much as $15/hour from the current state minimum wage of $7.50/hour. Many of the bills have step increases and all but one are indexed for annual increases based on the Consumer Price Index (CPI).
Over the past 20 years, the CP Index has averaged 4.12 percent. In 14 years, that would have increased a proposed $8.50 minimum wage to approximately $15/hour and the now proposed $15 wage would be more than $26/hour.
While that might sound good for some employees let's consider how this will truly impact New Mexicans:
1) Effect on employment. Seventy-seven percent of NMBC survey respondents felt that a minimum wage increase would increase unemployment. Respondents understand that many New Mexican employers would be forced to adjust to higher wages through layoffs, reduced hours or unfilled open positions.
An example of higher minimum wages affecting employment can be seen with Sitel, a worldwide outsourcing service provider with over 75,000 employees. When Las Cruces' minimum wage increased to $9.20 per hour, Sitel announced that it will close its location there after 10 years of operations. This decision occurred in spite of the fact that Sitel is expanding in other U.S. and world locations. The Las Cruces site employed 400, created an estimated 500 indirect jobs, and provided a tax base of $11 million to the city, county and state.
This is a significant loss for Las Cruces and our state. It is also, unfortunately, a sign of what we can expect, if we move forward with an increased minimum wage.
2) Impact on jobs. While initially some employees will benefit from increased pay, others will experience a lack of work or reduced hours. Higher minimum wages usually cause employers to hire fewer low-skilled workers in favor of more high-skilled workers.
Who suffers the most from this shift to high-skilled workers? a) Youth or those seeking employment for the first time; b) Elderly seeking supplemental income; and c) Those who may be unable to work at the same pace or capacity as others.
3) Impact on Education. When Santa Fe increased its minimum wage, the dropout rate increased as young people were lured to the idea of higher wages. With New Mexico 49th in education and having one of the highest dropout rates, we don't need anything else that will distract our youth from getting an education.
4) Impact on businesses. Businesses have a tax burden above wages paid to employees. To cover Social Security, Medicare/Medicaid taxes, Workers Compensation and Unemployment Insurance Taxes, the employer will pay about 10 percent over wages. In addition, employers who provide other benefits such as paid time off, health insurance, retirement, investment accounts, ... etc. are looking at additional costs of 20 percent to as high as 35 percent or more over the required taxes.
Using our recent research, a tax burden of 10 percent and additional benefits of 20 percent, a proposed minimum wage of $8.50/hour would mean a true employer cost of $9.35 to $11.05 per hour. At $15 per hour, that equates to a true cost of $16.50 to $19.50/hour.
5) Impact on other wages. An increased minimum wage will force other wages up. Why? Those who have worked to increase their wages through learning the trade, longevity, or promotions could be at or below wages of new hires. This generally forces employers to increase up line wages in order to keep seasoned employees and creates additional pressure on employers to fund positions.
6) Impact on goods and services. Businesses will be forced to raise prices in order to cover increased costs. Those who are on a fixed budget or struggling to make ends meet at the current prices will be the ones most impacted.
7) Impact on taxes. Employers forced to reduce personnel will pay higher Unemployment Insurance Taxes. In addition, as unemployment increases, government assistance will go up, which could cause increased taxes.
No matter how you package it, a minimum wage increase isn't just bad for business and our state's economy; it's bad for the very people we want to help.
What's the solution? The free market system and better education or training! Target, Wal-Mart and others voluntarily increased starting wages in order to attract and maintain better employees. And many smaller employers face the same issue as they seek to find quality employees.
Because minimum wage was never meant to be a living wage, employees can improve their opportunities for higher wages by improving their skills and/or education. The New Mexico Business Coalition, as the state partner for the National Association of Manufacturing, is looking for new and innovative ways to bring training and accreditation opportunities in manufacturing to our state. Manufacturing will provide opportunities for both the highly educated technology specialists as well as skilled employees who choose to work after high school rather than pursue higher education. Both types of employees are required in manufacturing.
While it may be government's role to determine taxes and how they are spent, it should not be government's role to decide what businesses pay employees. We hope that state legislators will recognize that businesses are better equipped to determine fair pay and vote against any legislation with a minimum wage increase.
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The New Mexico Business Coalition (NMBC) is a statewide nonpartisan, pro-market organization that works to improve the business environment for companies and the quality of life for all New Mexicans. Its educational efforts focus on providing New Mexicans the facts about regulation, legislation and elected officials' decisions affecting them. For more information, please visit our website at www.nmbizcoalition.org