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Industry Headed For Perfect Storm With Proposed Minimum Wage Increase

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by Linda Doherty/president, New Jersey Food Council

Special to The Shelby Report

The New Jersey State Senate is moving forward to seek passage of SCR-1, which proposes to amend the New Jersey Constitution to increase the minimum wage from $7.25 to $8.25 per hour and with adjustments for inflation based on the consumer price index (CPI). New Jersey residents would get an opportunity to vote on the proposal at the ballot box. Members of the New Jersey Food Council cannot endorse this proposal as our business owners and companies face the implications in its totality and not as an isolated proposal.

Forcing this type of increase through a constitutional amendment would not allow employers the necessary flexibility to control their payroll costs or respond quickly to changing fiscal realities. This amendment would also put New Jersey out of line with the majority of other states and would undermine our business climate. Only four states have minimum wages in their Constitutions. New Jersey continues to struggle with a very high unemployment rate. This type of proposal discourages companies from considering New Jersey as an attractive destination to locate or expand.

Food inflation and the rising cost of food products are having an impact on consumer spending at the checkout counter. New Jersey food retailers are some of the largest employers in the state and are already paying significant unemployment insurance tax rate increases along with the federal surcharge. Our members have some of the largest trucking fleets in the state and the recent toll increase and spike in gas prices are already cutting into tight margins in the food industry—on average a penny on the dollar.

The financial strain could come to a head as food companies will be challenged in 2014 when large employers will be faced with new federal health coverage mandates, which will force business to reevaluate personnel and human resource decisions. Collectively, these fiscal pressures will create the perfect storm for New Jersey food retailers.

A 14 percent increase in the minimum wage would be highly detrimental, as companies would be faced with tough choices including layoffs, reducing hours or scaling back benefits. An association survey of our member companies on the impact of a minimum wage increase showed that 55 percent think this proposal would impact their decision to hire employees, 45 percent expect this increase would result in layoffs, and 66 percent expect this proposal would increase costs on all wage earners, not just those who make the minimum wage. On average, these companies expect the cost of a minimum wage increase with a link to CPI to be about $400,000 a year. Cost estimates range from $15,000 per year to almost $2 million per year for individual supermarket companies. In this fragile economy, these figures are staggering and would damage expectations for an economic recovery.

Minimum wage increases also reduce access to entry-level jobs in the labor-intensive food industry. The ever-increasing cost and competition in food retail is slowly and methodically impacting a supermarket’s ability to survive. Since 2010, three major supermarket chains have closed over 30 stores in New Jersey. We do not believe that a $1 increase in the minimum wage with an annual increase based on CPI is sustainable for many of our members in addition to all these other government pressures they face.

The proposed amendment that ties the minimum wage increase to the consumer price index is an unpredictable cost. The CPI does not take into account the differences in economic growth among different industries. Despite the food retail industry’s struggle to keep prices low, food costs are rising. Ultimately, this proposal will result in even higher food inflation, and disadvantaged New Jersey residents will lose purchasing power for WIC and SNAP benefits.

We encourage policy makers to understand a proposed minimum wage increase is not an isolated issue but rather its effect will have a broader impact as other fiscal factors are already weighing down on the food distribution industry. In these uncertain times, predictable costs for business are paramount to economic stability and recovery.



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