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Employers Disappointed with Stand-Alone Minimum Wage Bill

Posted on November 18, 2013

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.