Who Should Pay for Seasonal Worker Wage Increases?
Deborah M. Figart, Ph.D.
New Jersey Governor Chris Christie recently announced that the state has a $807 million budget shortfall in Fiscal Year 2014. So proposals to “give away” tax revenue need to be considered very carefully. My estimate of one such bill in the New Jersey Assembly that provides seasonal employers tax credits on their income tax forms for hiring minimum wage workers is equal to $14.8 million in 2014 and up to $30.9 million by 2019.
On New Years Day in 2014, New Jersey became the 21st state to have a higher minimum wage than the federal minimum wage: $8.25 per hour, up from $7.25 per hour. Voters in New Jersey and other states have pushed for a minimum wage that would keep pace with the cost of living; the New Jersey and federal minimum wage had been $7.25 since 2009. Increases would raise the incomes of the working poor and help struggling families put more food on the table. Raising the minimum wage puts the burden for adequate living standards on employers, alleviating pressure on the social safety net.
In 2013, the New Jersey legislature delivered a bill to raise the state minimum to $8.50 per hour and index it to inflation. It was vetoed by the governor. After Governor Chris Christie vetoed the increase to $8.50 per hour, the measure was sent to the voters as Public Question 2 on the November 2013 election ballot. The same day that Chris Christie overwhelming won a second term, 61 percent of New Jersey voters pulled the lever in favor of raising the state minimum wage to $8.25. More important, the voters approved language that would automatically index the new state minimum wage to inflation.
Inflation has been running about 2.5 percent per year over the past 10 years, less than the average long run rate of 3.0 percent. Assuming 2.5 percent for each of the next five years, a low estimate, the New Jersey minimum wage would gradually increase to:
Those dollar amounts are too high for New Jersey State Assembly members Samuel L. Fiocchi and Chris A. Brown, who have sponsored a Bill No. 2983 that provides certain seasonal employers tax credits on their income tax. An “eligible employee” is one employed by a seasonal business for not more than 30 weeks per year. It has been referred to the Assembly Labor Committee for consideration. The sponsors hope for it to pass by the end of June, just in time for the summer tourism season at the Jersey shore.
The proposed legislation would allow seasonal employers to claim a tax credit equal to the federal-state minimum wage gap, the total number of hours worked by eligible minimum wage employees times the dollar amount by which the state minimum wage exceeds the federal minimum wage. The gap is currently $1.00 per hour ($8.25 minus $7.25). Seasonal employees would include groups such as migrant farm workers and teenagers at amusement parks and some Jersey shore restaurants.
Let’s do some basic math to estimate the effect of this bill. The current federal-state minimum wage gap is $1.00. Suppose seasonal employees work 4 months per year, or 18 weeks. Some work more, some less, so I have selected a midpoint. At 40 hours per week, this equals 720 hours per year. So 720 hours multiplied by a tax credit of $1.00 per hour equals $720 per employee. A tax credit, unlike a deduction, comes directly off the bottom line of the amount of taxes owed to the state.
How much total loss in tax revenue is this for the State of New Jersey? In other words, how much would the state subsidizing the hiring of private sector seasonal employees? The answer depends on developing an estimate for the number of seasonal employees in the State of New Jersey.
A data retrieval tool from the U.S. Bureau of Labor Statistics helps us calculate this estimate. We can compare the seasonally adjusted total private employment for New Jersey with the not seasonally adjusted total private employment. By selecting July 2013, a month and year with seasonal employment, the BLS shows the following for New Jersey:
3,365,200 employees, not seasonally adjusted
3,324,100 employees, seasonally adjusted
The difference is 41,100 employees (3,365,200 – 3,324,100). But not all seasonal employees work for seasonal employers. For example, casinos hire extra dealers every summer but are open year-round. Let’s assume that one-half of seasonal employees work for seasonal employers. That would be 20,550 workers or about 0.6 percent of the current New Jersey private sector labor force, which seems reasonable.
Recall our $720 dollar subsidy per worker. With 20,550 workers in a season, the total cost to the state would be $14,796,000 or $14.8 million dollars (20,550 employees x 720 hours x $1.00). According to the New Jersey Department of the Treasury, New Jersey is projected to collect about $2.483 billion in corporate business taxes in Fiscal Year 2014. The tax credit for seasonal employees would therefore amount to a 0.6 percent reduction in tax revenue.
By 2019, the state minimum wage could be $9.34 per hour. Assuming no growth in the number of seasonal employees by 2019, the cost to the state would be $30.9 million dollars in 2019 (20,550 employees x 720 hours x $2.09). The subsidy would be $1,504 per worker per year, reducing corporate tax revenue by about 1.2 percent. Of course, if the minimum wage is subsidized for seasonal but not permanent employees, there could be perverse incentives. For instance, Jersey shore restaurants that try to remain open during the winter, with pared down staff, may opt to close to meet the definition of “seasonal employer.” Another example is the inducement to cut labor costs. For employers who used to pay seasonal employees 50 cents an hour or more above the minimum wage, they would be incentivized to cut that wage down to the minimum to quality for the tax credit.
One may think that this is costing the state a lot or just a little. My point is this: we should have a reliable estimate of the cost of the Assembly bill by the New Jersey Office of Legislative Services. Finally, we should ask ourselves another question. If the federal minimum wage stays constant, New Jersey taxpayers will assume an increasing percentage each year. At what point does an increasing taxpayer subsidy mean that the seasonal employees are partly government employees and not just private sector workers?