Downsides of minimum wage boost and paid family leave

Measures likely to hurt workers and small businesses

FOR MASSACHUSETTS small businesses, 2018 is shaping up to be a potentially devastating year. A coalition backed by big labor is making a strong push for both a $15 minimum wage and mandatory paid family and medical leave. If these costly policies fail to be enacted through the legislative process, proponents will then ask Massachusetts voters to saddle small businesses with these unaffordable, one-size-fits-all mandates via the ballot.

While these initiatives may seem popular with workers, when you take a closer look, there is hard evidence to show there can be a boomerang effect. It’s incumbent upon lawmakers and possibly the voters to consider the unintended consequences of such policies.

Recent research on incremental hikes in the minimum wage in the city of Seattle shows there is a tipping point where such a policy can harm low-wage workers. Seattle commissioned studies on its law to raise the wage to $15 per hour each time there was an incremental increase. The first hike in the wage to $11 did show modest job losses of low-wage workers and fewer hours worked. When those losses were factored into increased wages, workers ended up making a few dollars more a week.

But recently, another study was done on the second incremental increase to $13 per hour. It found that nine months after that second bump in wages, about 5,000 low-wage jobs disappeared, the number of hours worked by low-wage workers dropped by 3.5 million hours, and their wages dropped by $6-million. One can only guess a future study on a $15 minimum wage will show a more devastating impact.

There is also a serious attempt to enact a new mandated benefit allowing workers up to 16 weeks of paid family leave and up to 26 weeks of paid medical leave. The program, estimated to be a roughly $1 billion tax, would be funded by employers and workers. It would mean less money in a worker’s paycheck and less money available for employers to hire and grow their businesses. In the small handful of states with mandatory leave programs, all are entirely funded by the worker (except in Washington State). While proponents of leave proposals claim widespread support from the general public, how many workers are aware they will see a reduction in their take home pay? How many workers would rather have a larger paycheck over another new state-run program they may never utilize?

Massachusetts is already a high-cost state for small business, with highest-in-the-nation energy costs, taxes, double-digit health insurance premium increases, mandated paid sick leave, and a new MassHealth assessment.

Increased labor costs mean hard choices for small business owners. Jobs can be eliminated, hours cut, and remaining employees asked to take on more duties. The latest Seattle study appears to confirm those were the choices employers made. Employers also can invest in automation to replace lower-wage workers, as we’ve seen with the ordering and payment kiosks at fast-food chains. Other businesses have launched apps to take orders electronically.

Meet the Author

Christopher Carlozzi

State director, National Federation of Independent Businesses
As Massachusetts small businesses are struggling and we see more darkened Main Street storefronts, this is the worst time to discourage business expansion and hiring. And, as entry-level and unskilled jobs disappear, the proposed measures would make it especially difficult for young people and those without any experience to enter the workforce.

Christopher Carlozzi is state director for the National Federation of Independent Business, which represents 6,000 small and independent businesses in Massachusetts.