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Proposed minimum wage hike seen as blessing or curse, depending on who's talking

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Joe Olivo, president, Perfect Communications. Olivo says he feels that increasing the minimum wage to $15 per hour would have a net negative effect on his employees and future business.
Joe Olivo, president, Perfect Communications. Olivo says he feels that increasing the minimum wage to $15 per hour would have a net negative effect on his employees and future business. - ()

When Gov. Phil Murphy was on the campaign trail, one of his more controversial platform planks was a call to raise the state's hourly minimum wage “gradually” to $15 from the current $8.60.

That would mean “those who want to work can support their family and ensure that no one who works full time” lives in poverty, Murphy said.

Trenton-based New Jersey Policy Perspective supports the move.

“Increasing the minimum wage to $15 an hour by 2024 would boost the pay of 1.2 million New Jersey workers – or 28 percent of the state’s workforce,” NJPP said in a report released before the election. “The wage increase would help a diverse group of workers who aren’t paid enough to make ends meet.”

Some business owners say a big hike in the minimum wage would kill jobs.

“In the short-term, employers are likely to reduce workers’ hours or engage in layoffs, or they may reduce employee benefits,” said Laurie Ehlbeck, state director of the National Federation of Independent Business. “Many of our members have fewer than 10 employees, and their profit margin isn’t large enough to easily absorb an extra cost like this.”

A minimum wage jump to $15 an hour “could have a devastating effect on smaller business, unless the increase was spread over two years or so,” said Arthur Guarino, an assistant professor of professional practice at Rutgers Business School-Newark and New Brunswick.

“Businesses in many industries could see some short-term pain, and food and food service industries in particular would likely be affected, since many are relatively small operations,” Guarino said. “Even large-company food operations could be hurt, since quick service restaurants are often owned by franchisees, who tend to be small operators.”

Some smaller businesses might respond with layoffs, he noted, while others might cut back on employee benefits. “Or, they may invest in more automation, which could mean fewer jobs, or at least fewer new jobs being created,” he said.

A big hit to a big industry?

The restaurant industry accounts for nearly 300,000 jobs in New Jersey as one of the state’s “Big 5” employment sectors. But a big hike in the minimum wage could wipe out some jobs, cautions Dana Zukofsky, a New York City-based director in the national restaurant practice of accounting firm BDO.

“Each case is unique, but restaurants generally run on very tight profit margin, so any increase could be detrimental to their bottom line,” Zukofsky said. “Many may have to find other ways to cut costs, either by looking for new suppliers, shortening employee hours or reducing staff.”

Some fast-food restaurants are experimenting with automation. Burger chain Shake plans to open cashless, kiosk-only location in New York City.

“Rising wage costs could spur other chains to consider automation,” Zukofsky said. “But technology has a cost, too. So each company would have to do its own analysis.”

Amazon, which recently unveiled Amazon Go — its largely automated supermarket in Seattle that eliminates the need for cashiers — illustrates this trend, Guarino said.

“It’s been reported that at least one pizza company in California is already using a robot-enabled pizza-assembly line,” he noted. “It’s good for people to have a higher minimum wage, but if it’s done in a short time frame it could be too much of a shock for some businesses.”

California has a minimum wage of $10.50 an hour or more, depending on the size of the business, with a hike to $15 an hour scheduled for many companies in 2022.

“As a consultant to small businesses here in New Jersey, I can say that raising the minimum wage to $15 an hour will cause employers to modify their hiring plans,” said Sean Raquet, a West Orange partner at Bederson Co. LLP.

“An increase in minimum wage not only increases the payroll but also payroll taxes and workers compensation insurance,” Raquet added. “Roughly a $1 increase per hour will cost the employer $1.20, which is a direct hit to the company’s bottom line and its cash flow. Unless the company can pass the increased cost on to its customer, a business will have to pause before hiring.”

Even a phased in increase to $15 an hour could drive some companies out of the state, said Joe Olivo, CEO of Perfect Communications, a second-generation printing-communications company in Moorestown with about 55 full-and part-time employees.

“I am really concerned,” Olivo said. “Out of all Gov. Murphy’s plans, this scares me the most. We compete nationally — our commercial printing clients include GameStop, Urban Outfitters, the University of Pennsylvania and OppenheimerFunds Inc. — and I won’t be able to compete with print companies in many lower-wage states. Wages make up my single largest line item.”

Could automation spur a new kind of economy?

The increase of workplace automation and robotics has raised concerns about how a displaced labor force will survive.

Arthur Guarino, an assistant professor of professional practice at Rutgers Business School-Newark and New Brunswick, suggests universal basic income may be an answer.

“In its simplest form, UBI is a fixed, monthly cash payment given to each adult citizen regardless of income or work status unconditionally to provide for basic living expenses,” Guarino wrote in the July issue of “Global Risk Insights.

Finland and Canada are experimenting with the concept on a limited basis, which would be expensive to expand broadly.

“Critics have charged that it would cost the United States approximately $3.2 trillion to give $10,000 UBI to each citizen,” Guarino noted.

Olivo’s hourly employees currently earn from $10 to $33, depending on experience and other factors.

“If I have to pay a significantly higher wage at the lower end, I may have to lay off employees or cut back on other benefits, like the 100 percent health-plan coverage we currently offer,” he said. “The market won’t let me hike my prices to make it back, so any solution would be painful.”

Meantime, Olivo has been thinking about exiting the state.

“On almost a weekly basis I’m approached by business-friendly states like Virginia,” he said. “Until now I’ve never seriously considered their pitch. But this wage increase has, for the first time, convinced me to start doing some hard calculations of what the true cost benefits would be of moving out — with all of our heavy equipment — or staying here.

“We’ve got a history in this area--my parents started this business in their garage, and today my two brothers, my wife and my mom are all active in it. But we may be getting closer to a move away from here.”

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