Issue Brief: 2015 Minimum Wage Increase Will Boost Pay for About 5 Percent of New Jersey’s Workers

Issue Brief: 2015 Minimum Wage Increase Will Boost Pay
for About 5 Percent of New Jersey’s Workers

Indexing 2013’s Increase Pays Modest Dividends
But More Progress Needed for Low-Wage Workers

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key facts-01On January 1, 2015, New Jersey’s minimum wage will rise by 1.59 percent to $8.38 per hour,[1] giving approximately 176,000 Garden State workers a slight pay increase in the new year.

To call this 13-cent wage increase “modest” would be a huge understatement. But the lifting of the wage floor is an important illustration of smart policy design and the power of “indexing” minimum wages. Without a minimum wage that was tied to rising costs of living, as New Jersey’s now is, these workers would see a decline in the purchasing power of their meager wages.

Policymakers were smart to include indexing in their work on the 2013 wage increase, but that does not mean they can “set it and forget it.” There is clearly more work to be done to improve the economic security of the Garden State’s low-wage workers.

directly v indirectly2-01Of the 176,000 workers affected by the wage increase, 130,000 are directly affected – meaning they currently make between $8.25 and $8.37 per hour – and the remaining 46,000 are indirectly affected – meaning they currently make $8.38 per hour or slightly more and will see their pay increase as employer pay scales are adjusted upward to reflect the new minimum wage.[2] Overall, these 176,000 workers will see an average annual wage increase of $313 in 2015.

bottom half-01The wage increase will disproportionately boost the take-home pay of New Jersey’s low- and moderate-income families. The increase for all affected workers will total $55.1 million in 2015, with $39.9 million – 72 percent – going to families in the bottom half.[3] This increase in wages will result in an estimated $34.9 million increase in state economic activity, as most of these workers spend much of their new earnings locally on clothing, food and other necessities.

While the 2015 increase in the state minimum wage is welcome news for New Jersey’s low-wage workers, it is not a wage floor that allows workers to get by, much less climb into the middle class, in a high-cost state such as New Jersey.

In order to meet a “survival budget” – in other words, to just meet basic needs – a New Jersey single adult needs to earn $13.78 per hour. When looking at a “stability budget,” which includes more money for better food and shelter, plus modest savings and other important measures of economic sustainability, the wage for a New Jersey single adult to meet that budget rises to $19.73 per hour.[4]

As a result, many workers in low-wage jobs rely heavily on the social safety net, through programs like Medicaid and food stamps, in addition to private charitable services throughout the state.[5] While the safety net is an important part of the social contract, and should remain strong, federal, state and local governments can do their part to reduce these costs being shifted from employers to taxpayers by taking additional efforts to raise the minimum wage.

Federal. Congress should act on proposals to raise the federal minimum wage to $10.10 per hour and index the wage to inflation. Such an increase would boost the earnings of 19 percent of New Jersey’s workforce, or close to one of every five workers in the state.[6]

State. The aforementioned tipped minimum wage was the only part of New Jersey’s wage floor left out of the state’s most recent increase. That means the approximately 140,000 New Jersey workers who rely on tips are stuck in an inefficient, complicated system that does not always guarantee they are taking home the minimum pay required by law. New Jersey should follow the lead of seven other states and become an “equal treatment” state, with no distinction between the tipped minimum wage and the regular minimum wage.[7]

Local (With a Big Assist from State). In the past few years, local governments all across the country have worked around political gridlock in Congress and state legislatures by enacting strong minimum wage increases. Whether it’s $15 in San Francisco and Seattle or $13 in Chicago, these localities are at the forefront of a movement to bring the minimum wage much closer to a living wage. And New Jersey’s cities and towns should join them.

But right now, state law and legal precedent don’t allow local governments in New Jersey to set higher minimum wages than the state floor. As a first step, New Jersey lawmakers should change that.[8] Once legislators take that initial step, local leaders across New Jersey should begin considering significant minimum wage increases that bring their wage floors closer to what it really costs to get by in that area.

basic wage by county-01

January 1 Increase Will Help a Diverse Group of Low-Wage Workers

A total of 176,000 low-wage New Jersey workers – or 4.6 percent of the state’s total workforce –will benefit from the coming minimum wage increase. Due to ongoing shifts in the nature of low-wage work in America, these workers are older, more educated and working more hours than they have been in decades – despite the insistence of minimum wage opponents that low-wage workers are primarily teenagers looking for extra cash.[9]

Of those affected, an overwhelming majority – 78 percent — are at least 20 years old, while one in three – 33 percent – are at least 40 years old. About four in ten – 38 percent – are working full-time, and an additional 35 percent are working mid-time (between 20 and 35 hours per week). Only 27 percent are working part-time. (See Appendix A for a full demographic breakdown)

About 2 in five of the workers – 36 percent – have some college education or a degree, and about the same share – 33 percent – have a high school diploma or equivalent, while fewer – 31 percent – have not finished high school. About one in five – 18 percent – have children, most of whom are single parents.


Appendix A: Demographic Breakdown

demographics appendix-01


Endnotes

[1]New Jersey Department of Labor and Workforce Development, Division of Wage and Hour Compliance, Notice of Administrative Change N.J.A.C. 12:56-3.1, December 2014
[2] All economic and demographic information in this report is from the Economic Policy Institute’s analysis of the Current Population Survey (CPS), Outgoing Rotation Group public use microdata from the fourth quarter of 2013 to the third quarter of 2014. The number of workers is estimated from the CPS respondents for whom either a valid hourly wage is reported or one can be imputed from weekly earnings and average weekly hours. Consequently, this estimate tends to understate the size of the full workforce. Gross Domestic Product (GDP) figures utilize a national model to estimate the GDP impact of workers’ increased earnings. Thus the total state stimulus may be lower than this amount because workers in each state will not necessarily spend all of their increased earnings in-state. However, we can assume that most of the increased earnings will be spent in-state. All figures are rounded for clarity and readability, except in the Appendix.
[3] This figure is for all families earning less than $75,000, and the 2013 state median family income is $87,347.
[4] United Way of Northern New Jersey, ALICE New Jersey: Study of Financial Hardship, September 2014
[5] For example, see: University of California, Berkeley, Center for Labor Research and Education and the University of Illinois at Urbana-Champaign Department of Urban & Regional Planning, Fast Food, Poverty Wages, October 2013
[6] New Jersey Policy Perspective, Increasing the Minimum Wage to $10.10: A Win-Win for New Jersey, April 2014
[7] New Jersey Policy Perspective, Raising the Tipped Minimum Wage Would Increase the Economic Security of Many Hard-Working New Jerseyans, July 2014
[8] Assembly members Gusciora and Oliver earlier this month introduced legislation to allow local governments to enact higher minimum wage increases. The bill, A-3912, awaits a hearing from the Assembly Labor Committee.
[9] For example, see: Center for Economic and Policy Research, Low-Wage Workers Are Older and Better-Educated Than Ever, April 2012