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Think the Minimum Wage Increase Doesn't Affect You? Think Again

Posted by John Regan on Jan 6, 2014 8:58:00 AM

Supporters and opponents of increasing the minimum wage in Massachusetts agree on one thing – the ramifications extend well beyond companies that currently pay the $8-per-hour minimum and the workers who earn that amount.

The Senate bill boosting the state minimum wage to $11 per hour over the next three years would provide an average pay increase of $2,573 to 491,900 Massachusetts workers who currently earn between $8 and $11 per hour. It would indirectly push up wages by an average of $727 for an additional 317,200 workers because of union contracts linked to the minimum wage and general upward pressure on wages.

That comes to a total tab of $1.5 billion for Massachusetts employers.

Those aren’t our numbers – they come from a study by the Economic Policy Institute and reported by the Massachusetts Budget and Policy Center, a left-leaning think tank that strongly supports the minimum-wage increase. From the employer point of view, the research raises the specter of massive wage compression in which newer and lesser skilled workers suddenly earn as much as more experienced employees who are providing value to an organization.

The lesson – raising the minimum wage will affect your company and your compensation plan even if you have no workers within sight of $8 per hour.

“Employers who pay more than minimum wage tend to ignore the potential effects of an increase,” said Gary MacDonald, Executive Vice President of the Employers Resource Group at Associated Industries of Massachusetts.

“But the Senate proposal to move to $11 per hour and index it to inflation thereafter will affect more than three quarters of a million employees, most of whom currently earn more than minimum.”

The Senate passed its version of a minimum-wage increase on November 19 in the face of opposition from AIM and other business groups.

Legislative leaders had indicated earlier in the year that they would consider tying the minimum wage increase to substantive reform of the commonwealth’s outdated Unemployment Insurance system. House Speaker Robert DeLeo continues to suggest that he will link the two issues when his chamber debates the minimum wage in the next several weeks.

“In addition to the minimum wage, I think maybe we have to change some of the burdens that businesses presently face in Massachusetts,” House Speaker Robert DeLeo told the State House News Service on October 29.

Advocates are also seeking to place a minimum-wage increase to $10.50 per hour on the 2014 statewide ballot.

The push on minimum wage comes as Massachusetts employers plan to increase overall wages and salaries by an average of 2.96 percent during 2014, a rate that would finally surpass the levels that were in place prior to the Great Recession. The AIM Human Resource Practices Survey, set for release this week, finds that projected raises for next year continue a trend that has seen salary growth climb from a low of 1.7 percent in 2009 to 2.1 percent in 2010, 2.4 percent in 2011, 2.55 percent in 2012 and 2.8 percent this year.

Wage compression from minimum wage increases causes multiple problems for employers. It can erode morale among workers as existing employees become angry that newer or lower-skilled colleagues are making nearly as much or, in some cases, more than they are. That anger can in turn accelerate turnover as the result of employees quitting.

Companies will be forced to address the problem by adjusting their entire compensation systems, usually upward and across-the-board.  The adjustments will include salary ranges, which are developed by setting range widths (difference between minimum and maximum) and relationships between range midpoints.

AIM opposes increasing the minimum wage because the action misses the real reason that many of our fellow citizens struggle to achieve an adequate standard of living - lack of appropriate training for the high-value jobs driving the state economy.

A market-based economy provides financial compensation to employees according to their ability to contribute to the success and profitability of the organization. That’s why AIM has for decades supported education reform, school-to-work initiatives, increased opportunities for training, community-college-based training initiatives, tax credits for training, and funding for the Massachusetts Workforce Training Fund.

Increasing the minimum wage has the perverse effect of limiting opportunity for young and lower-skilled workers and pushing jobs out of the market. Far from helping poor people, moving the minimum wage to $11 an hour will simply ensure that people whose skills do not justify that wage will not find jobs.

The more targeted approach to assist families is through the Earned Income Tax Credit (EITC), a credit currently set at 15 percent of the amount of the federal credit in Massachusetts.  These sole earners derive greater economic benefit from the combined state and federal EITC.  Because the EITC does not have a correspondingly negative impact on job creation and business costs, AIM has supported this approach rather than simply raising the minimum wage, or here simply indexing the wage to CPI.

Topics: Minimum Wage, Massachusetts Legislature, Unemployment insurance

Employers Disappointed with Stand-Alone Minimum Wage Bill

Posted by John Regan on Nov 18, 2013 8:45:00 AM

The minimum-wage increase steaming toward approval in the Massachusetts Senate this week is disappointing for many reasons.

Minimum WageThere is, first of all, the argument on the merits. Increasing the minimum wage misses the real reason that many of our fellow citizens struggle to achieve an adequate standard of living - lack of appropriate training for the high-value jobs driving the state economy.

A market-based economy provides financial compensation to employees according to their ability to contribute to the success and profitability of the organization. That’s why AIM has for decades supported education reform, school-to-work initiatives, increased opportunities for training, community-college-based training initiatives, tax credits for training, and funding for the Massachusetts Workforce Training Fund.

Increasing the minimum wage has the perverse effect of limiting opportunity for young and lower-skilled workers and pushing jobs out of the market. Far from helping poor people, the proposal to increase the minimum wage to $11 an hour by January 2016 and then index it to inflation will simply ensure that people whose skills do not justify that wage will not find jobs.

U.S. Census Bureau data shows that 90 percent of Massachusetts employees earning the minimum wage live with either their parents or another relative, they live alone or have a working spouse.  Just 10 percent are sole wage earners in families with children.  Why pass an across-the-board increase for all minimum-wage earners when our real intent is to help those who have families to support?

The more targeted approach to assist these families is through the Earned Income Tax Credit (EITC), a credit currently set at 15 percent of the amount of the federal credit in Massachusetts.  These sole earners derive greater economic benefit from the combined state and federal EITC.  Because the EITC does not have a correspondingly negative impact on job creation and business costs, AIM has supported this approach rather than simply raising the minimum wage, or here simply indexing the wage to CPI.

But the disappointment of employers with the current minimum wage bill extends beyond the issue itself to the broader question of Beacon Hill’s commitment to balancing the needs of workers with those of small employers struggling in an uncertain economy still afflicted with 7.2 percent unemployment.

AIM and its 5,000 member employers were encouraged in October when Legislative leaders indicated that they might link the minimum wage increase with an attempt to reform the commonwealth’s antiquated and expensive unemployment insurance system.

“In addition to the minimum wage, I think maybe we have to change some of the burdens that businesses presently face in Massachusetts,” House Speaker Robert DeLeo told the State House News Service on October 29.

Massachusetts UI costs, driven by high wages, lenient qualification requirements and an overly generous benefit structure, are the highest in the country. AIM has long supported changes to the system through which benefits are paid to unemployed workers. It is a system that has generated dizzying uncertainty for employers during the last five years as lawmakers have been forced to freeze automatic rate increases that were not needed to maintain the financial stability of the Unemployment Insurance Trust Fund.

The Legislature’s Joint Committee on Labor and Workforce Development has, indeed, been gathering information about a possible Unemployment Insurance/Minimum Wage package. Employers would need to see the final contours of the package before determining whether to support it, but the business community generally believes that such a combined approach holds the most potential for helping the Massachusetts economy.

So employers – even those who have no workers earning the minimum wage – were shocked and disheartened to learn that the Senate will move forward on the wage measure without accompanying structural reforms to the unemployment insurance system. We now hope that the House of Representatives maintains its commitment to a balanced approach that will at long last address one of the most  problematic and unnecessary cost issues facing Massachusetts employers.

AIM has a clear definition of substantive UI reform:

  1. Adjust the UI rate schedule to require negatively rated employers, those who habitually put employees into the UI system, to pay higher rates than more stable employers whose employees rarely use the UI system; and to require that new employers contribution rate be set at the so-called zero positive rate, more accurately reflecting the employers actual trust fund balance and avoiding "sticker shock" when receiving the actual bill after the first year of operation. 
  2. Increase the work requirement for eligibility to collect UI benefits from 30 times the weekly benefit amount to forty and requiring wages to be paid in at least two quarters, bringing Massachusetts into line with the majority of other states; (estimated annual savings:  $30 million.)
  3. Reduce the maximum duration of benefit weeks from 30 to 26 when the state's economy is performing well by adjusting the statutory trigger mechanism from 5.1 percent unemployment in each of the 10 local labor markets in the state to a straight 5.1 percent unemployment rate statewide over the preceding six months - producing savings in the UI Trust Fund of between $50 and $90 million per year. This provision would bring Massachusetts' benefits into line with all other states.

Topics: Minimum Wage, Unemployment insurance, Issues

Speaker Offers Hope for Unemployment Insurance Reform

Posted by John Regan on Oct 29, 2013 4:33:00 PM

Massachusetts House Speaker Robert DeLeo provided a dose of hope to employers today by confirming that lawmakers may attempt to reform the commonwealth’s antiquated and expensive unemployment insurance system.

DeLeoState House News Service reported that DeLeo is looking to link structural changes to the UI system with an anticipated effort to increase the state minimum wage or other issues.

“In addition to the minimum wage, I think maybe we have to change some of the burdens that businesses presently face in Massachusetts,” DeLeo told the News Service.

Associated Industries of Massachusetts has long supported changes to the system through which benefits are paid to unemployed workers. It is a system that has generated dizzying uncertainty for employers during the last five years as lawmakers have been forced to freeze automatic rate increases that were not needed to maintain the financial stability of the Unemployment Insurance Trust Fund.

Massachusetts UI costs, driven by high wages, lenient qualification requirements and an overly generous benefit structure, are the highest in the country. AIM’s Unemployment Insurance reform proposal, contained in House Bill 1732 and reflected in other bills, seeks to introduce more than $100 million in one-time and recurring cost savings into the system by the following reforms:

  1. Adjusting the UI rate schedule to require negatively rated employers, those who habitually put employees into the UI system, to pay higher rates than more stable employers whose employees rarely use the UI system; and to require that new employers contribution rate be set at the so-called zero positive rate, more accurately reflecting the employers actual trust fund balance and avoiding “sticker shock” when receiving the actual bill after the first year of operation.  
  2. Increasing the work requirement for eligibility to collect UI benefits from 30 times the weekly benefit amount to forty and requiring wages to be paid in at least two quarters, bringing Massachusetts into line with the majority of other states; (estimated annual savings:  $30 million.)
  3. Reducing the maximum duration of benefit weeks from 30 to 26 when the state’s economy is performing well by adjusting the statutory trigger mechanism from 5.1 percent unemployment in each of the 10 local labor markets in the state to a straight 5.1 percent unemployment rate statewide over the preceding six months – producing savings in the UI Trust Fund of between $50 and $90 million per year. This provision would bring Massachusetts’ benefits into line with all other states.

AIM is less enthusiastic about linking UI reform to an increase in the $8-per-hour minimum wage or to measures compelling employers to provide paid sick time. Both proposals would dampen the already anemic job growth in the commonwealth and should, in any case, be debated on their own merits as a matter of good government.

The minimum wage increase and paid sick time could both appear on the 2014 state ballot. Activists collecting signatures propose to ask voters to raise the minimum wage to $10.50

“The chair’s been talking to a lot of different parties to come up with a comprehensive package that deals with the minimum wage on one side and the UI on the other so we have an employer-dash-employee piece of legislation that can be beneficial to both. Whether right now we’re going to be there or not, I don’t know,” DeLeo told State House News.

Asked about a perceived lack of appetite among members to take votes on two issues that could be seen as unfriendly to business, DeLeo said, “That could be right, but I wouldn’t want to rule it out just yet.”

Many small business owners cannot afford to pay higher wages and continue to hire new employees. While Massachusetts’ minimum wage remains 75 cents higher than the national $7.25 base rate, other states are moving toward higher wages.

Topics: Minimum Wage, Unemployment insurance, Issues

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