Escape from New York: Minimum Wage is Killing and Chasing Away Small Businesses
Big government is crushing small business owners around the nation, punishing decades of hard work and job creation. Too few people speak up as the burdens of the regulatory and nanny states slam down upon them, but every now and then I hear from someone in trouble.
Most recently, I received a call from New York City businessman Eli Amsel. In 2016, he told a New York State Assembly committee that he was inspired to start his own business thanks to his grandfather—a Holocaust survivor—who impressed upon him the value of freedom and the opportunity to pursue the American dream. “And that’s why I had this inspiration, and I made it work, and I’m here 34 years later, after toiling all these years,” he said. Amsel launched his business in 1982 from the basement of his father’s Brooklyn home.
Since then, Amsel has been selling unbranded plastic and paper bags to a variety of shop owners, and he spent decades building his client base. Certainly not a “get-rich-quick” scheme, it required driving the city from one shop to another, finding the right products, and building relationships with shop owners. As the business grew, Amsel began shipping with UPS, hiring workers, and he bought a warehouse to store his products. He had something he hoped to pass on to his three children and eight grandchildren, but now he’s worried that part of that dream may never materialize.
Despite the growing economy, Amsel says his business is down by 20 percent because New York’s regulatory environment is crushing him. In particular, during the past several years, the regulatory state has delivered a triple whammy: an insanely high minimum wage hike, bag taxes, and now a possible ban on his key product—plastic bags.
Goodbye American dream; hello regulatory nightmare.
In this first of two posts about Amsel, we’ll take a look at one of his biggest challenges: minimum wage laws. Supposedly such laws are implemented to help employees, but they do more to put people out of work or reduce their hours than anything else. These laws kill small businesses that would otherwise provide jobs.
Signed by Gov. Andrew Cuomo in 2016, the state began phasing in a minimum wage hike starting in December 2017 that will ultimately increase to $15 per hour over the next year and a half. Businesses with more than 11 employees must comply by December 2018, and businesses with 10 or fewer workers have until December 2019. See the chart below from the New York Department of Labor website for details.
Other states and localities are also imposing such anti-employee, anti-business wage increases, including Seattle, Washington, and the entire state of California. The results are not good.
Minimum wage laws often force employers to make tough decisions to stay afloat, such as cutting the number of employees and/or work hours. A study conducted in the state of Washington showed that minimum wage laws in Seattle actually reduced worker income because employers reduced the number of hours employees could work. Some people dispute the findings of this study with questionable claims of their own, but it’s really only common sense. No one needs a study to understand that when labor costs are artificially increased, businesses have to find ways to offset them, and obviously that does not help workers.
New York’s law created the perverse incentive for small businesses that have just above 10 employees to cut their employee numbers down to 10 immediately to avoid the fee increase for at least one year, after which they may have to cut more or reduce hours.
That’s what Amsel had to do—eliminate four jobs to bring his total employees below 10. So while some of his employees may have gotten a “raise,” four were left without jobs. And he had to drastically cut the hours and eliminate some paid holidays for his remaining employees. And once December 2019 arrives, he may have to consider reducing hours or eliminating more employees.
Amsel is not alone. The minimum wage hike is harming lots of businesses—closing down historic mom-and-pop neighborhood eateries, and forcing other business to flee to other states.
Restaurants are being hit hard in New York as well. As the wage law is phased in, the tip-based approach for wait staff is largely being replaced by a $10-per-hour salary, plus a guaranteed $5-an-hour in tips the employer must pay if tips don’t amount to that much. This will likely change how dining establishments operate. Expect to see more at-table computerized ordering and fewer wait staff. Such automation is fine when restaurants choose to do it, but many restaurants will basically be forced into making such changes because they won’t be able to afford the labor.
It’s no wonder people are leaving New York.
Some local lawmakers have started to catch on. Although Democratic politicians have traditionally supported minimum wage laws, Washington, D.C.’s largely Democratic (eleven Democrats and two left-of-center Independents) city council is trying to repeal a voter initiative increasing the minimum wage to $15 in the nation’s capital. Apparently, they don’t want to see D.C.’s economic health go down the drain.
Amsel tells me that he would like to see Congress and the president take a similar action nationally—essentially repealing such state and local minimum wage laws by passing legislation to preempt them. He’s got a point. If the Democratic D.C. Council is willing to take a stand, why not Congress? You can learn more about his story in this YouTube video and this New York Daily News story.