New York Governor Andrew Cuomo has managed to shake off his worries about ongoing federal criminal investigations swirling around him and his administration and has done something that his supporters call a bold move to help the middle class. What is this bold move? Cuomo has issued an order to raise the minimum wage for "tipped" workers to $7.50 per hour. Tipped workers are people like restaurant workers, hotel maids and pizza delivery workers who get a substantial portion of their income from tips. The minimum wage is the amount that employers must pay in wages to these workers before they collect tips. The minimum has been $5 per hour, so the increase is 50%.
The effect of this move will be interesting to see. Certainly many workers will benefit. On the other hand, some marginal businesses will throw in the towel. Think about it. A restaurant with ten waiters, bartenders, and busboys will suddenly have to pay an additional $52,000 per year in wages, and since many items like insurance, social security, etc. are proportional to wages, there will be other increases. There are many restaurants for which the extra $75,000 per year will be too much. These places will close and the workers will lose their jobs. Then there is another question that needs to be addressed: how many of these workers will start to be paid "off the books". Will jobs for hotel maids migrate to illegal aliens or others who are willing to stick with lower wage payments that are never disclosed to the government?
The truth is that a major change to wage rates which is set by an edict from the government always has unintended consequences. We will have to wait to see how this unfolds.
The effect of this move will be interesting to see. Certainly many workers will benefit. On the other hand, some marginal businesses will throw in the towel. Think about it. A restaurant with ten waiters, bartenders, and busboys will suddenly have to pay an additional $52,000 per year in wages, and since many items like insurance, social security, etc. are proportional to wages, there will be other increases. There are many restaurants for which the extra $75,000 per year will be too much. These places will close and the workers will lose their jobs. Then there is another question that needs to be addressed: how many of these workers will start to be paid "off the books". Will jobs for hotel maids migrate to illegal aliens or others who are willing to stick with lower wage payments that are never disclosed to the government?
The truth is that a major change to wage rates which is set by an edict from the government always has unintended consequences. We will have to wait to see how this unfolds.
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