M E M O R A N D U M

TO:                         Members of the Senate Budget & Appropriations Committee

FROM:                   Christina M. Renna, Senior Vice President, CCSNJ

RE:                         Opposition to S-15


DATE:                    January 28, 2019

 

The Chamber of Commerce Southern New Jersey opposes S-15, which proposes to increase the minimum wage to $15 per hour over a several year period. This increase amounts to a nearly 60 percent increase over the current minimum wage of $8.85 and a nearly 25 percent increase in the next 11 months.

Raising the minimum wage to $15 per hour will exacerbate the already outsized cost of doing business in New Jersey.  Those costs put New Jersey last in the Tax Foundation’s 2019 Business Tax Climate Index, and second to last in the Small Business & Entrepreneurship Council’s “Small Business Policy Index of 2018.” 

Last year, we surveyed our members on the impact of a minimum wage increase to $15.00 per hour. Not surprising, 76 percent of our members oppose the increase.  Those who do not oppose the increase are primarily businesses that would not be impacted by the increase as they pay their professionals well above the minimum wage; yet they express concerns over the impact of the increase on cost of goods and services. 

An unspoken ramification of this drastic of a raise in the minimum wage is the joblessness that will inevitably result from it.  There are four classifications joblessness that are worth considering in the larger conversation: 

  • People who will not be able to get jobs: High school and college students for summer and part time jobs; and unskilled, less educated workers.  We have seen this borne out in the studies and it’s consistent with what we hear from our members.  American Legislative Exchange Council (ALEC) conclusion:  “Even if employers do not decrease hiring, they will respond to higher labor costs by replacing the lowest-skilled individuals with more highly-skilled employees, and inexperienced workers will be priced out of the market.” 
  • People who will be replaced by technology: This is already happening in our everyday lives.  In fact, Wendy’s recently announced that its franchisees will start using touch screen ordering. Airports are moving away from restaurants and to touch-screen ordering.  Other examples of technology include:  ATMs; self-checkout lines at retail establishments; and warehouse and distribution facilities that are using robotics to do jobs previously done by laborers. 
  • Fewer jobs added: Paying workers an artificially inflated wage will strain the resources of business who will not be able to add jobs (think of a salary line that will be 80% higher when the phase in is complete).
  • Labor cutbacks: Either by reducing hours, number of workers, or simply not replacing workers who leave -- and stagnant wages. 

In 2005, our Chamber testified before the Senate Labor Committee, along with a member of the Chamber’s Board of Directors, William Eubanks, III, President & CEO of Eubanks Enterprises, a franchisee of 29 Kentucky Fried Chicken restaurants.   In 2001, Mr. Eubanks decided to invest $15 million in our state and open twenty one restaurants, most of which were located in South Jersey.  At the time, his restaurants employed 650 people, a vast majority of whom were young workers earning minimum wage.   But, four short years later, instead of expanding in New Jersey, he was closing restaurants. 

Mr. Eubanks pointed out to the Committee members that increasing the minimum wage was just part of the overall picture of doing business in New Jersey.  At the time, he was faced with absorbing $17,000 more in corporate taxes because of the changes that were made to the corporation business tax in 2002; his workers’ compensation insurance increased 30 percent over three years; medical insurance, utility costs, and property and casualty insurance rates were also on the rise.  As a result of these increased costs, Mr. Eubanks was forced to close four of his restaurants. 

He predicted at the time that the immediate cost impact of increasing the minimum wage --  $200,000 – would force him to close six more of his restaurants, and as a result 120 to 150 employees would lose their jobs.  He also indicated that he would scrap his plans to invest further in the state. 


The end of the story:  Mr. Eubanks closed all of his stores and left the state in November 2007.  All 650 of his employees lost their jobs.

               

We understand that there appears to be public support for increasing the minimum wage, and that there are forces that truly believe doing so is the answer to providing people with a livable wage, for which the minimum wage was never intended.  It’s important, though, to keep in mind what the job creators are saying, as one needs to actually have a job in order to earn the minimum wage. 

We urge you to vote “no” on S-15.



CCSNJ Member Testimonials on the Impact of a $15 Minimum Wage

v  Manufacturer in Vineland, NJ

“We greatly value our team members and try and pay a fair wage.  The new proposed pay increases would create additional financial burden on our company.  Unfortunately, we have begun to take steps to look for ways to cut head count, which includes automation, global partnerships to source regionally, and potential shifts in overall strategy which could include moving our business overseas.  I foresee other manufacturers doing the same as it is becoming necessary. We feel that NJ is not a business-friendly State.”

v  Small Home Improvement Company in Camden, NJ

“The increase will hurt my small business of 15 employees. For starters, the employees that are making $20.00 per hour and above will want more money, but it is also not right to bring in new people that do not know the business and start them at a $15 per hour rate. I hire a lot of unskilled labor - if everyone gets $15 per hour, why would I hire the unskilled candidate’s when I can hire college students or more skilled individuals? That’s just common sense - all business owners will hire the more qualified people, which will end up hurting the exact people the legislators are trying to protect.”

v  Food Retailer in Southern New Jersey

“After we ran the numbers, it’s clear this impact will be significant and possibly make us close some locations.  According to the wage increase schedule in the bill, by 2023 (the year before New Jersey hits $15 per hour) our net income is completely eliminated based on current projections. This does not include any increase to deal with wage compression or other expenses being passed on by our business partners, such as service vendors and local product distributors.”

v  Early Childhood Care Center in Voorhees, NJ

“I strongly feel this wage increase will put me out of business.  I am a small business and I am not making a huge profit. I am now contemplating whether I should sell my business after 16 years, because I don’t think I will be able to sustain this increase. In order to meet this pay requirement, I will have to increase parent’s tuition which I feel is already a large expense.  People paying for childcare are not minimum wage employees, so they will not get a raise but could face a 20% increase in the childcare expenses. On top of that I will most likely have to cut my health benefits and IRA force employees, not offer discounts for my employee’s children to attend The Goddard School and not offer as many PTO days that I currently do (which is more than required by state). I feel I will have to cut some staff which will make my class sizes larger and not have as a good quality of teacher/student ratio. I strongly feel like this increase is going to be very difficult for the small business owners to survive.” 

v  Industrial Mid-Sized Employer in Camden, NJ

“This is absolutely awful. This will result in our company having to lay off employees.  Our employees start at $11/hour. They begin by sweeping floors in the warehouse.  They have the ability to move up and make more money if they choose to do so.  For a lot of our employees, we are the employer of last chance.  We have ex-cons, ex-drug offenders who simply need somebody to believe in them and give them a job.  We can't afford to pay people $15 to sweep the floors of the warehouse. Look at what McDonald's is going to combat the rising minimum wage. They are installing kiosks into their restaurants which will reduce headcount.  How is that helping?”

v  Food Manufacturer in Cumberland County, NJ

“The minimum wage increase has been in discussion for a while and I knew it was only a matter of time for NJ to initiate a higher minimum wage. The major recommendation I would offer is that, NJ’s minimum hourly wage has to stay in competition with all other surrounding states. Our company needs to compete on a level playing field with its competitors, who are in other states. If we are paying these increases, my competitors in other States should be simultaneously paying the same minimum wages as NJ. We are currently paying a starting rate at $10 an hour and the $5 increase would cause over $7,500,000.00 per year impact to our labor cost. Without other states increasing their minimum wage simultaneously with NJ, we will not be able to compete with our competitors in surrounding states who pay their employees at a much lower minimum wage.”


v 
Large Manufacturer in Atlantic County, NJ

“We’ve run the numbers – when it’s all said and done this is a $1.1 million hit to our bottom line. Currently, we have been exploring opening a second business line and annually I have representatives from North Carolina visiting me asking me to move our business to their state, which is much friendlier to businesses generally, with a much lower tax rate. If this goes into effect, North Carolina is 100 percent on the table, which will mean a loss of over 1,000 jobs to New Jersey.” 

v  Large Regional Department Store in Southern NJ

“My law office represents a large regional department store chain, with eight stores anchoring Malls throughout South and Central Jersey. Some of these Malls are failing and my client is a major employer in these communities.  Brick and mortar department stores like my client are under tremendous financial pressure from online sales, as proven by the virtual collapse of the Sears chain. The profit margins for these stores are slim.  Many of these jobs will simply disappear, or hours will be greatly reduced in order for the stores to turn a profit.  The result will be less money in the pocket of these workers and loss of healthcare benefits as they transition to part-time or lose their jobs.  If the cost is still too great, the stores may simply close, putting these people out of work.  If that happens, there will be a cascade effect of loss of jobs for various independent contractors and professional that service these stores.  This substantial increase in the minimum wage will have the unintended effect of doing just the opposite of its stated goals.”