The Economic Impact of a $15.00 Minimum Wage in New Jersey on The Retail Grocery Industry

Transcription

1 The Economic Impact of a $15.00 Minimum Wage in New Jersey on The Retail Grocery Industry Prepared for the New Jersey Food Council By John Dunham & Associates Brooklyn, New York August 12, 2016

2 The Economic Impact of a $15.00 Minimum Wage in New Jersey on The Retail Grocery Industry Table of Contents Map of New Jersey Food Stores by Facility... 3 Executive Summary... 4 Minimum Wage Increases Lead to a Decrease in Job Growth... 4 A $15.00 Minimum Wage Will Increase Prices and Decrease Employment... 4 A $15.00 Minimum Wage Will Actually Harm Senior Citizens and Low-Income Households 4 The Historic Effect of Minimum Wage Increases on Job Growth... 6 Economic Impact of the Retail Grocery Industry in New Jersey... 9 The Impact of a $15 Minimum Wage on Overall Wages The Effect of the Minimum Wage Increase on Actual Wages The Effect of a Minimum Wage Increase on Higher Wage Workers The Impact of a $15 Minimum Wage on Consumers and Workers Grocery Market Basket Impact of the $15 Minimum Wage on Grocery Prices and Employment Effect of Minimum Wage on Older Consumers Impact of the $15 Minimum Wage on Federal Benefit Recipients The Impacts of a $15 Minimum Wage on Grocery Retailers Methodology Appendix 1: Economic Impact by Geography Summary of Economic Impact by Congressional District Summary of Economic Impact by Legislative District Summary of Economic Impact by County Appendix 2: Market Basket by Retailer Type Appendix 3: Overall Change in Market Basket By Household Appendix 4: Percent of Sales to Shoppers over

3 Map of New Jersey Food Stores by Facility 3

4 Executive Summary The New Jersey State Legislature is proposing to raise the minimum wage to $15.00 per hour, one of the highest required wages in the country. 1 Proponents suggest that a higher minimum wage will raise incomes for workers without impacting job growth or consumer prices. However, historical trends and economic modeling show that an inordinately high minimum wage will impact industries throughout the Garden State. One sector that will see a tremendous impact is the retail grocery industry, one of New Jersey s largest overall employers. The industry hires thousands of lower-skilled workers throughout the state, employing tens of thousands of teens, entry-level workers and seniors supplementing incomes. By increasing the minimum wage, the State of New Jersey will force retail grocers to reduce staff, cut work hours and raise prices. This will negatively impact residents on fixed incomes, seniors and the very population a minimum wage increase is supposed to help low-wage workers. A higher minimum wage will effectively be a tax increase on all of New Jersey s residents. Minimum Wage Increases Lead to a Decrease in Job Growth New Jersey has raised the minimum wage eight times since Each increase caused New Jersey s job growth to lag behind the rest of the nation. Had New Jersey s job growth kept pace with the country, the state would have created 620,462 more full-time equivalent (FTE) jobs between 1990 and today. A $15.00 Minimum Wage Will Increase Prices and Decrease Employment The New Jersey retail food industry employs the equivalent of 164,396 full-time workers, generating almost $8 billion in wages and over $19 billion in total economic output. New Jersey households purchase roughly $23.2 billion in necessities annually from the state s retail food industry. If a $15 per hour minimum wage was enacted, the retail food industry will be forced to increase the prices charged to consumers, but also lower business expenses by decreasing employees and their work hours. The overall cost of grocery products will increase by a staggering $644.3 million dollars. In order to pay for this, New Jersey food retailers will be forced to shed 8,730 full-time jobs, representing almost 17 million fewer employment hours. In addition, the price tag of a $15 minimum wage to consumers is nearly $294 million per year. New Jersey residents will incur significant costs when paying for common products like food, baby goods or toilet paper. Most significantly, the cost of paper products will increase by 14.8 percent and services will increase by 15.5 percent. A $15.00 Minimum Wage Will Actually Harm Senior Citizens and Low-Income Households New Jersey seniors age 55 and over will bear 40 percent of the increased costs resulting from a minimum wage increase. New Jersey residents with incomes of less than $20,000 annually will bear 18 percent of these costs. 1 The highest state minimum wage is in the District of Columbia, where it is set at $10.50 per hour. Two states currently have a $10.00 per hour minimum wage (California and Massachusetts). The minimum wage is scheduled to increase to an amount above $10.00 per hour in California, Connecticut, DC, Hawaii, Maryland, Massachusetts, New York, Oregon, and Vermont. California, DC and New York are scheduled to reach a rate of $15.00 per hour. See: State Minimum Wages 2016 Minimum Wage By State, National Conference of State Legislatures, April 14, 2016, at: 4

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6 The Historic Effect of Minimum Wage Increases on Job Growth New Jersey is considering raising the state minimum wage to $15.00 per hour. At $8.38 per hour, New Jersey s minimum wage is already the thirteenth highest in the nation. At $15.00 per hour, New Jersey would be tied for the highest minimum wage nationwide. 2 Data shows that higher mandated wages result in a loss of low-wage jobs and impede job growth. Figure 1 Actual Growth v. Potential Growth for Low-Wage Jobs in New Jersey, , , , ,000 Actual Potential 50, New Jersey has increased its minimum wage eight times since Over the same period, growth in minimum wage level jobs in the State has lagged behind the rest of the nation. Workers who can find jobs are earning more money, but fewer low-wage jobs are available. Figure 1 shows the actual growth in lowwage employment from 1990 to 2015 against the potential growth in those same jobs were they to grow at the same rate as the United States overall. Figure 2 Actual Growth v. Potential Growth for All Jobs in New Jersey, ,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 - Actual Potential 2 Only California, New York and the District of Columbia currently have $15.00 minimum wage requirements legislated and all of these are for future dates. 3 New Jersey s minimum wage increased in 1992, 1994, 2000, 2006, 2007, 2010, 2014, and However, the increases in 1992 and 2010 reflect the increase in the national minimum wage. The effects of New Jersey s minimum wage increases on state employment are analyzed for those years for which the state minimum wage changed independent of the federal minimum. 6

7 The picture is similar for all New Jersey jobs, indicating that the loss in lower-wage jobs is not simply due to a shift toward higher-wage employment. Figure 2, on the prior page, maps the historical New Jersey jobs against the number of jobs that would be available had state jobs grown at the national rate. Table 1 summarizes the actual job growth as compared to the potential job growth for low-wage jobs and all jobs. By 2015, the gap between potential low-wage jobs and actual low-wage jobs is nearly 18,000 positions. The overall difference between actual and potential is more than 620,000 lost jobs. Table 1 Difference in Actual Jobs and Potential Jobs, Low Wage Jobs All Jobs Year Actual Potential Difference Actual Potential Difference , ,096-3,026,227 3,026, , ,520 6,769 2,875,217 2,963,074 87, , ,398 8,318 2,837,448 2,973, , , ,545 11,144 2,874,813 3,037, , , ,041 13,717 2,927,031 3,132, , , ,904 12,764 2,993,284 3,224, , , ,192 15,548 3,004,354 3,301, , , ,183 16,845 3,075,516 3,403, , , ,771 14,418 3,158,902 3,497, , , ,272 13,205 3,246,802 3,582, , , ,436 17,100 3,317,953 3,664, , , ,160 15,741 3,306,094 3,640, , , ,507 9,556 3,275,702 3,583, , , ,282 3,482 3,262,121 3,566, , , ,527 7,074 3,274,157 3,613, , , ,396 5,951 3,308,847 3,684, , , ,566 6,241 3,340,229 3,754, , , ,043 4,041 3,349,749 3,797, , , ,481 4,583 3,321,919 3,770, , , ,478 3,571 3,158,235 3,562, , , ,040 1,332 3,135,081 3,537, , , ,475 5,024 3,156,538 3,603, , , ,409 8,958 3,194,470 3,685, , , ,305 11,066 3,235,655 3,762, , , ,436 14,586 3,263,453 3,849, , , ,226 17,983 3,300,112 3,920, ,462 To put this into context, had employment in New Jersey grown at the same rate as jobs grew nationally, more new jobs would have been created than the entire employment base of Bergen, Essex or Morris County. Historically, increases in the minimum wage rate have preceded a decrease in the job growth rate, with few exceptions. Table 2 on the following page, details the growth rates in the year prior to the minimum wage increase alongside the job growth rate in the year of the minimum wage increase for both low-wage jobs and for all jobs. In the majority of instances, job growth declined in the year that the minimum wage was hiked. New Jersey has raised the minimum wage eight times since 1990; however, two of those wage increases coincided with national increases in the minimum wage. This table displays the six years for which an increase in the minimum wage was exclusive to New Jersey. The numbers represent a clear reduction in job growth. 7

8 Table 2 Change in Job Growth Rates Following State Minimum Wage Increases 4 Low Wage Job Growth Rate All Job Growth Rate Year Prior Year Current Year Change Prior Year Current Year Change % 0.74% -1.16% 1.32% 1.82% 0.50% % -1.23% -4.69% 2.78% 2.19% -0.59% % 1.78% -1.41% 1.06% 0.95% -0.11% % 3.45% 1.67% 0.95% 0.29% -0.66% % 1.48% -1.31% 1.29% 0.86% -0.43% % 0.78% -0.70% 0.86% 1.12% 0.26% 4 Prior year refers to the growth period ending in the year prior to that displayed, and current year refers to the growth period ending in the given year. For example, the prior year for 1994 represents the job growth from , and current year represents the growth from A detailed methodology of this analysis can be found in the Methodology section of this report. 8

9 Economic Impact of the Retail Grocery Industry in New Jersey The retail grocery industry is an important part of New Jersey s economy, providing jobs and economic activity throughout the state. The industry in the State of New Jersey consists of over 6,030 individual stores, including grocery stores, supermarkets, specialty food stores like butchers, bakers and produce stands, as well as certain convenience retailers which are not almost exclusively gasoline stations. These 6,030 retail food stores in New Jersey directly create almost 112,500 full-time equivalent jobs. Figure 3 presents a map outlining the location of each of the retail stores in New Jersey. Figure 3 Location of Retail Food Stores in New Jersey The operation of these facilities throughout New Jersey creates significant economic activity, including additional supplier and induced effects. In all, the retail grocery industry in the Garden State generates a total of nearly 164,370 full-time equivalent jobs, paying a total of $8.0 billion in wages and benefits. 5 The economic activity generated by the retail grocery industry provides over $19.0 billion in economic benefits to the state, including nearly $1.8 billion in state and local tax revenues and collects about $277.8 million in sales taxes from the state s consumers. 6 5 A full-time equivalent job is not a person, but rather represents the construct of a full-time equivalent employee or roughly 1900 hours of work. 6 Output is a proxy for Gross Margin it represents the value added by the retail and wholesaling operations in the state of New Jersey. 9

10 Table 3 Economic Impact of the Retail Grocery Industry in New Jersey Jobs Wages Output Grocery Stores and Supermarkets 73,639 $2,662,283,300 $5,334,706,800 Specialty Stores 10,360 $373,444,900 $739,871,900 Convenience Retailers 17,272 $659,417,400 $1,282,983,800 Grocery Wholesalers 11,213 $1,191,300,100 $3,118,844,800 Direct Impact 112,484 $4,886,445,700 $10,476,407,300 Supplier Impact 20,622 $1,332,288,000 $3,703,707,100 Induced Impact 31,263 $1,763,879,000 $4,868,685,300 Total 164,369 $7,982,612,700 $19,048,799,700 The economic impact model is driven by facility level data provided from InfoGroup. Data were reviewed to ensure that each facility matched the definition of a retail grocery outlet. A full methodology on the construction of the model is available in the Methodology section of this report. All of the facility level data were mapped to physical coordinates. This allows for the calculation of impacts across counties and state legislative districts. A breakdown of the impact of the industry in terms of total jobs and total facilities is provided in Table 4 on the following page, and further detail by Congressional District, Legislative District and County is provided in Appendix 1. Table 4 Grocery Facilities and Total Employment by Legislative District Legislative District Retailers Total FTE Jobs Legislative District Retailers Total FTE Jobs NJ ,120 NJ ,923 NJ ,598 NJ ,210 NJ ,772 NJ ,252 NJ ,329 NJ ,379 NJ ,693 NJ ,869 NJ ,578 NJ ,768 NJ ,814 NJ ,912 NJ ,586 NJ ,049 NJ ,054 NJ ,805 NJ ,081 NJ ,494 NJ ,552 NJ ,179 NJ ,872 NJ ,058 NJ ,751 NJ ,944 NJ ,350 NJ ,974 NJ ,289 NJ ,837 NJ ,382 NJ ,341 NJ ,964 NJ ,590 NJ ,505 NJ ,600 NJ ,271 NJ ,284 NJ ,609 NJ ,735 10

11 The Impact of a $15 Minimum Wage on Overall Wages This analysis examines how a $15.00 minimum wage would impact wages paid by different types of grocers across New Jersey, and how these higher wages would lead to reductions in employment hours for staff. 7 The Effect of the Minimum Wage Increase on Actual Wages Basic economic theory provides that a higher minimum wage will impact consumers, workers, and businesses throughout the Garden State. In general, setting a wage floor should lower demand for labor. This is no different than how, for example, a cigarette excise tax sets a price floor on that product, thereby reducing overall demand. Labor is no different. Higher minimum wages will price out the most marginal of workers, and at a minimum would reduce the number of hours of employment offered to workers. As such, part of the higher cost resulting from minimum wage legislation would be paid by labor through reduced hours and employment opportunities. 8 Currently, retailers in New Jersey pay an average of between $9.67 and $12.25 per hour depending on the store type. After wage based benefits are included, this results in a full-time equivalent wage of between $23,340 and $25,750 per year. 9 Were the minimum wage to increase to $15.00 per hour, wages for those workers who continue to be employed would rise by between 55 and 100 percent, to roughly $40,000 per year. The lowest hourly wage paid by grocery retailers would be $16.50 once wage based taxes paid by companies (unemployment, disability, family leave, workforce development and Federal Insurance Contributions Act (FICA)) are included. When the value of voluntary benefits such as health insurance, tuition reimbursement and other programs are included, the minimum cost for a worker is much higher than that. 10 Table 5 Estimated Wage Changes Under a $15.00 Minimum Wage Current Average Wage Current Average Wage + Benefits New Average Wage + Benefts Percent Change Grocery Stores $11.95 $13.15 $ % Specialty Stores $9.67 $10.64 $ % Convenience Retailers $9.79 $10.77 $ % Supermarkets $12.25 $13.48 $ % The Effect of a Minimum Wage Increase on Higher Wage Workers If the minimum wage rises to $15.00 per hour, companies would not just increase the amount paid to the lowest wage workers, but would also have to increase wages to higher paid workers in order to maintain some integrity to the wage structure. This model assumes that wages would rise according to a declining marginal percentage increase across wage classifications. In this case the $15.00 minimum wage would 7 A full discussion of the methodology used to calculate these impact is included in the Methodology section of this report. 8 See for example: Lee, Dwight, Price Floors, Surpluses, and the Minimum Wage, Foundation for Economic Education, December 1, 1998, at: 9 US Department of Labor, Bureau of Labor Statistics, Quarterly Census of Employment and Wages, New Jersey Statewide average for all establishments by NAICS code, Adjusted to include wage based benefits such as FICA and NJ employment taxes (est. to average 10 percent). Full-time equivalent wages are based on 1,912 annual hours worked. 10 It should be noted that many sole proprietors of family members working in mom and pop stores may actually receive wages (or distributions) far lower than the current state minimum wage. 11

12 increase wage requirements for the lowest paid workers by about 79 percent. Under this model, wages would increase up to about $30.00 per hour, with those currently making more than that amount seeing no effect from the minimum wage increase. 11 This is due to compression effects. In this case the expected wage rate grows at a declining percentage up to the point where workers are currently making close to $30.00 per hour will see increases approaching zero percent. Figure 4 shows how this would look across the spectrum of wages paid by grocery stores. Similar patterns are seen in all of the other retail categories. Figure 4 Changes in Grocer Wage + Benefit Rates Under a $15.00 Minimum Wage Requirement 12 As the figure shows, the minimum wage, even at $15.00 per hour, actually impacts only a small portion of the wage distribution. These costs are not passed through directly to consumers. Rather, prices, wages and employment levels will adjust based on a variety of factors, including the product sales mix, overall consumer spending and current employment and wage levels in each store type. 11 According to recent academic research, federal and state minimum wages were nominally nonbinding above the tenth percentile of the wage distribution, and only between 1979 and 1983 were more than 10 percent of hours paid were at or below the minimum wage. One paper estimated that minimum wage had spillover effects on percentiles above where it binds. An increase in the minimum wage would compress the measured wage distribution up to the thirteenth percentile. See:, e.g., David H. Autor, et. al., The Contribution of the Minimum Wage to US Wage Inequality over Three Decades: A Reassessment, Applied Economics, January 2016, While the authors of this study suggest that this measure may be more a statistical anomaly resulting from variability in the data, it would make sense that higher paid workers would see some benefit from higher minimum wages as firms would wish to keep some differential for more skilled workers, or as workers under union contracts add minimum wage provisions as part of their collective bargaining negotiations. 12 As the graphic shows, wages are expected to increase not only for the lowest paid workers, but for some higher paid workers as well. While about 74 percent of the wage increase would accrue to those currently making less than $15.00 per hour ($28,680 per year), the remainder would go to higher wage employees. In fact, in the case of supermarket workers, the wage will rise for workers making under $54,330 per year, and for grocery workers it would rise for those making up to $60,140 per year. Nearly all convenience and specialty store workers would see their salaries increase under a $15.00 minimum wage using the assumptions built into this model. 12

13 The Impact of a $15 Minimum Wage on Consumers and Workers The cost of a higher minimum wage would be paid for by consumers through higher prices and employees through a loss of jobs and work hours. If grocery retailers are unable to recoup the entire costs of the legislated wage increase through reduced jobs, they will attempt to pass through the higher costs to consumers. The ability to do this is limited by both consumer purchasing power, as well as by general demand for products. Many products are what economists call elastically demanded, in that higher prices lead to lower sales. On the other hand, products such as gasoline have lower demand elasticities, and would therefore continue to sell at similar levels even with higher prices. Grocery Market Basket In order to determine how these minimum wage increases will impact consumers and workers, it is necessary to first determine the market basket of products purchased by people in New Jersey s grocery stores, supermarkets, convenience stores and other specialty food retailers. The way that minimum wage law changes will impact stores depends on both their relative size and the market basket of goods sold in each store type. Stores create jobs and economic impact in New Jersey by retailing a wide range of products to millions of shoppers every year. Based on data provided by the US Department of Commerce, grocery retailers sold approximately $23.2 billion worth of products and services to consumers from stores in New Jersey. 13 These data were aggregated into 79 different product classifications corresponding to the 2012 Economic Census of the United States. 14 Dividing this by the number of households in New Jersey, with each household representing a shopper, this means that the average market basket of goods sold by retailers was $7,278, or about $140 per week. 15 Table 6 Average Market Basket by Retailer Type Retailer Type Stores Sales Market Basket (Sales per Household) Grocery Stores 2,184 $1,233,961,092 $387 Specialty Stores 591 $1,413,923,206 $443 Convenience Retailers 1,426 $9,534,871,809 $2,990 Supermarkets 1,831 $11,021,725,662 $3,457 Total 6,032 $23,204,481,769 $7,278 These sales are not standard across store classifications, with the average supermarket selling $3,460 worth of products annually per household, and the average specialty food retailer selling just $443. Convenience retailers are skewed high because many of these stores also sell gasoline (which accounts for about 75 percent of sales). The table in Appendix 2 outlines the overall market basket for each retailer type based on product categories. 13 Based on average retailer sales by product category from US Department of Commerce, Bureau of the Census, Retail Trade: Subject Series - Product Lines: Product Lines Statistics by Industry for the U.S. and States: 2012, 2012 Economic Census of the United States, availableat: 14 Ibid. 15 Averaging across all households in New Jersey, According to the US Department of Commerce, Bureau of the Census there are 3,188,498 households in the state, with an average household size of about 2.72 people. 13

14 Impact of the $15 Minimum Wage on Grocery Prices and Employment An increase in the minimum wage in New Jersey would incur significant costs to consumers on necessities ranging from food, to baby goods, to household cleaning supplies and toilet paper. An analysis of the proposal to increase the minimum wage to a level of $15.00 per hour indicates that the typical New Jersey household could see the price of necessities purchased in grocery stores, specialty food stores and convenience stores increase as much as $92.30 annually. This means that the $15 minimum wage will lead to the cost of grocery products increasing by a total of $644.3 million dollars. Table 7 breaks the cost increases out by major product category. A more detailed breakdown per product is available in Appendix Table 3. Food items would see a large price increase of 3.1 percent, paper product will increase by 14.8 percent and services will increase in cost by 15.5 percent. Table 7 Cost Increase of Specific Goods $15.00 Minimum Wage Product Line Grocery Percent Change Supermarket Percent Change Convenience Percent Change Specialty Percent Change Total Percent Change Industry Total $29,492, % $333,682, % $200,957, % $80,171, % $644,303, % Groceries and Food $12,160, % $226,855, % $35,751, % $70,332, % $345,099, % Tobacco $5,267, % $895, % $15,487, % $22, % $21,673, % Health and Beauty $205, % $26,485, % $604, % $323, % $27,619, % Soaps and Cleaners $35, % $9,033, % $105, % $268, % $9,443, % Paper Products $61, % $41,072, % $180, % $1,394, % $42,707, % Clothing $0 0.0% $747, % $0 0.0% $0 0.0% $747, % Fuel $0 0.0% $736, % $110,610, % $0 0.0% $111,347, % Meals $8,597, % $5,396, % $25,277, % $2,158, % $41,429, % Services $1,897, % $248, % $5,577, % $0 0.0% $7,723, % Other $1,267, % $22,210, % $7,362, % $5,671, % $36,511, % These price increases will have to be paid by someone either by consumers, workers, or company owners or shareholders. While firms will try to pass through as much of the increase as possible, they are limited by both consumer purchasing power (which does not increase along with the minimum wage) and by demand reactions to the higher prices themselves. Table 8 Estimated Distribution of Higher Costs from $15.00 Minimum Wage Retailer Type Market Basket (Sales Per Household) Increase in Cost Per Household Percent Change To Consumer Lost Jobs Lost Jobs Pct Grocery Stores $ $ % $ % Specialty Stores $ $ % $ , % Convenience Retailers $2, $ % $4.56 1, % Supermarkets $3, $ % $ , % Total $7, $ % $ , % Product level demand elasticities were found from a variety of sources to help determine how higher prices would result in reduced sales. 16 These elasticity estimates were matched as closely as possible to the various product categories used in the analysis. Based on these elasticities and the increase in prices in each of the categories, changes in volume sales for each product category were calculated. As each of the stores sells less, they will need less staff. The reduction in sales is used to estimate the reduction in labor hours across store types under a new $15.00 minimum wage. As Table 8 shows, much 16 See: Anderson, Patrick L., et. al., Price Elasticity of Demand, November 13, 1997, at: US Department of Agriculture, Economic Research Service, Commodity and Food Elasticities, at: Gallaway, Michael P., et. al., Short-run and long-run industry-level estimates of U.S. Armington elasticities, North American Journal of Economics and Finance, March

15 of the cost will be borne by workers, with an overall reduction of 8,730 full-time equivalent jobs (which represents almost 17 million lost labor hours). These job losses will cover roughly 54 percent of the estimated increased costs due to the minimum wage hike, or about $349.9 million. Most of the remainder would come from higher prices passed through to consumers. Of the $644.3 million cost increase, roughly $294 million will come from consumers. Effect of Minimum Wage on Older Consumers Changes in market basket costs will also vary by demographic group. Older shoppers are impacted to a much greater extent than are younger families or middle aged workers. People in this demographic tend to have lower incomes. According to the United States Census Bureau, families headed by someone between 55 and 65 have an income that is 14 percent lower than an average household headed by someone between the ages of 45 and 54. Those families headed by someone over 65 have an average income that is almost 50 percent lower. And while these families tend to have lower poverty rates than young families in particular, they also tend to rely more on fixed income sources like pensions, retirement savings and social security. This, and the fact that older residents tend to purchase more at grocery and convenience stores makes them particularly sensitive to the cost increases brought on by higher minimum wages. 17 Table 9 Estimated Change in Costs By Group Shopper Demographics Lower Income Middle Income Upper Income Young Middle Aged Older Grocers $652,650 $1,031,964 $1,694,408 $916,369 $1,102,408 $1,360,246 Supermarkets $25,712,078 $42,376,024 $70,592,814 $33,358,504 $41,725,658 $63,596,754 Specialty Stores $2,729,482 $4,425,531 $7,371,578 $3,729,809 $4,552,303 $6,244,480 Convenience Stotes $24,837,640 $43,577,858 $69,672,285 $35,927,236 $43,125,543 $59,035,003 Total $53,931,850 $91,411,377 $149,331,085 $73,931,918 $90,505,911 $130,236,482 Seniors over age 55 will bear approximately 40 percent of the increased costs of a $15.00 minimum wage. Many consumers in this age group are on fixed incomes and will be greatly challenged by these cost increases. This is in part due to the fact that older residents of New Jersey purchase the lion s share of groceries, but also due to the purchasing patterns of these residents. For example, older shoppers purchase over 65 percent of the medications sold in supermarkets and over 50 percent of the paper goods. Both of these products are highly labor intensive and inelastic, meaning that price increases will be passed through to shoppers rather than workers. In all, older shoppers purchase roughly 40 percent of all of the goods sold by New Jersey s food retailers, ensuring that the costs of a minimum wage increase will fall substantially on them. Table 10 Share of Shopping by Shoppers over 55 Years Old Grocery Supermarket Specialty Convenience Share of Sales Made to Shoppers over 55 Years Old 40.26% 45.86% 42.99% 42.75% Impact of the $15 Minimum Wage on Federal Benefit Recipients 17 See: DeNavas-Walt, Carmen and Bernadette D. Proctor, U.S. Census Bureau, Current Population Reports, P60-252, Income and Poverty in the United States: 2014, U.S. Government Printing Office,Washington, DC,

16 Higher minimum wages can also lead to unintended consequences for people receiving public benefits such as those provided by the Supplemental Nutrition Assistance Program (SNAP) and the Women, Infants, and Children (WIC) Program. Both of these programs have income eligibility limits, and many low-income residents in New Jersey are eligible for SNAP and/or WIC benefits. 18 Higher grocery prices would dramatically impact SNAP and WIC recipients. These recipients will realize a significant drop in their purchasing power due to higher prices of groceries and other essentials. Table 11 Estimated Change in Costs For those on Public Assistance Retailer Type Increase in WIC Costs Increaase In SNAP Costs Total Increase Under Both Programs Grocery Stores $1.20 $0.08 $1.28 Specialty Stores $3.14 $1.55 $4.68 Convenience Retailers $21.25 $0.20 $21.46 Supermarkets $12.12 $4.02 $16.14 Total $37.71 $5.85 $ Data on employee family income, family size and gender (all potential factors for benefit eligibility) are not available. Sales to people on various benefit plans is based on general sales to lower income New Jersey residents, indexed to reflect overall per capita benefits to people on SNAP and WIC by county. The actual number of beneficiaries are based on the most recent number of SNAP beneficiaries by county. (State of New Jersey Department of Human Services, Division of Family Development, Current Program Statistics, February 2015). Beneficiaries are assumed to shop in stores located in their county of residence.. 16

17 The Impacts of a $15 Minimum Wage on Grocery Retailers Finally, some of the cost of higher minimum wages would be paid by the grocery retailers themselves. In this case, a small mom and pop type retailer might be forced to close, or to reduce hours because they can no longer afford employees. Or in the case of larger retailers, they may limit expansion plans, move investment out of state, or defer maintenance. In addition, higher state level minimum wages can place New Jersey firms at a disadvantage in comparison to national retailers, or retailers located across state borders. This cross-border effect can already be seen at locations where major highways cross the border between New Jersey and New York, where the lower prices for gasoline in the Garden State have led to a huge concentration of gasoline stations and gasoline sales; or where there are bridges over the Delaware River, and package stores in New Jersey serve a large clientele from Pennsylvania where beverage alcohol sales are restricted. Another problem with a high state minimum wage is that it puts New Jersey based firms, like Wakefern Food Corp., New Jersey s largest private employer, the world s largest food cooperative and the seventeenth largest supermarket retailer in the United States, at a disadvantage to national chains like Wal-Mart or online retailers like Amazon. National chains will absorb higher labor costs in New Jersey by raising prices minimally across their huge market area. Automated, online retailers will keep using technology to avoid hiring people. It is New Jersey based retailers that will bear the burden of this forced wage increase because their stores can only realize a limited number of sales, and prices can only be raised so high to compensate for the higher wage costs. New Jersey was once the headquarters to many major supermarket chains including Pathmark and The Great Atlantic & Pacific Tea Company, better known as A&P. A&P was once the nation s largest chain of grocery stores, and was the company that created the supermarket concept. Both companies merged within the last decade and just recently filed for bankruptcy in 2015, after a combined 200 years in business. A significant minimum wage increase will further jeopardize established, New Jersey based, food retailers (like Wakefern) which will find it difficult to compete with the nation s highest minimum wage increase. Companies that call New Jersey home and that provide tens of thousands of lower-skilled workers with employment opportunities would be placed at a particular disadvantage by this extraordinarily high wage floor. Higher minimum wages may also impact New Jersey companies that manufacture products sold in retail stores. While data are not available to completely understand how sales may shift between different brands and different individual products, the elasticity analysis used to calculate job losses can also shed some light on the implications for New Jersey s consumer products companies. New Jersey is home to many important manufacturing firms that provide the products that food retailers stock on their shelves. These include, for example, Camden-based Campbell Soup Company with about 530 employees in the state, Roseland-based B&G Foods with 163 employees, Jersey City-based Goya foods with 580 employees, Pinnacle Foods Group with about 1,000 employees in Cherry Hill, Carneys Point-based Lassonde Pappas & Company, Inc. with about 630 employees, paper manufacturer Soundview Paper with about 1,000 employees in Elmwood Park, and the Parsippany-based multinational Reckitt Benckiser LLC, which employees over 1,070 employees working in the state. 19 Table 11 on the prior page outlines how sales of products of the type manufactured by these firms would fall following the implementation of a $15.00 minimum wage. 19 Job numbers from Infogroup the leading provider of business and consumer data for the top search engines and leading in-car navigation systems in North America. Infogroup gathers data from a variety of sources, by sourcing, refining, matching, appending, filtering, and delivering the best quality data. Infogroup verifies its data at the rate of almost 100,000 phone calls per day to ensure absolute accuracy. Data for Goya foods from McDonald, Terrence T., A 'great Goya day' at opening of new HQ in Jersey City, The Jersey Journal, April 29, 2015, and reflects the fact that the company recently moved and opened an expanded facility. 17

18 Methodology For the examination of trends in low-wage jobs in New Jersey, employment and wage data came from the Quarterly Census of Employment and Wages, covering the period 1990 to 2015-Q3. 20 Annual employment and annual wage figures were assumed to be the averages of the quarterly data. Only privatesector employment is considered for the analysis, since it is more vulnerable to the market effects of wage increases. Government employment can be supported through deficit spending or tax increases, and that luxury is not available to private sector employees. Average hourly pay was calculated for each industry category in the QCEW. This was based on 52 weeks of work per year and 40 hours of work per week. Low wage industries in this study were determined to be those jobs in New Jersey that paid less than $9 per hour in 2015 that had complete data for the 25-year period. Potential job growth was calculated by setting the initial year s job number equal to that of New Jersey s and then growing jobs at the national job creation rate. This is done for both low-wage and all jobs. Data for the economic impact analysis came from Infogroup. 21 Facility level data were reviewed to ensure that each facility matched the definition of a retail grocery outlet. These included grocery stores, supermarkets, specialty food stores like butchers, bakers and produce stands, as well as certain convenience retailers which are not almost exclusively gasoline stations. 22 In all over 6,030 individual stores were included in the analysis. Where facility level employment numbers were not available from Infogroup, median full-time equivalent jobs by firm type (stores and wholesalers) were used. Once these initial, or direct, employment figures were established, they were entered into a model linked to the IMPLAN database. The IMPLAN data are used to generate estimates of direct wages and output as well as the supplier and induced figures. 23 IMPLAN was originally developed by the US Forest Service, the Federal Emergency Management Agency, and the Bureau of Land Management. It was converted to a user-friendly model by the Minnesota IMPLAN Group in The IMPLAN data and model closely follow the conventions used in the Input-Output Study of the US Economy, which was developed by the Bureau of Economic Analysis (BEA). This model calculates the impact generated by the stores and wholesalers themselves, not sales, or the impact of products simply passing through the wholesale and retail chain. As such, the term suppliers represents firms that supply store operations (electricity, cash registers, uniforms) not firms that supply goods for sale at the stores Bureau of Labor Statistics, Quarterly Census of Employment and Wages, available online at Data accessed May 3, State database used for primary analysis, county database used for employment in Bergen, Essex, and Morris Counties. 21 Infogroup is the leading provider of business and consumer data for the top search engines and leading in-car navigation systems in North America. Infogroup gathers data from a variety of sources, by sourcing, refining, matching, appending, filtering, and delivering the best quality data. Infogroup verifies its data at the rate of almost 100,000 phone calls per day to ensure absolute accuracy. 22 This definition was provided to John Dunham and Associates by the New Jersey Food Council. Many other retailers offer grocery products for sale in New Jersey including pharmacies, variety stores (i.e., dollar stores), warehouse club stores and department stores (i.e., Costco and Wal-Mart). These outlets are not included in this analysis ensuring that the results are generally modest when compared to the actual impact of a $15.00 minimum wage provision. 23 This model is based on the 2012 IMPLAN tables for New York State. IMPLAN Group, LLC, IMPLAN System (data and software), Birkdale Commons Parkway, Suite 206, Huntersville, NC The IMPLAN model is based on a series of national input-output accounts known as RIMS II. These data are developed and maintained by the U.S. Department of Commerce, Bureau of Economic Analysis as a policy and economic decision analysis tool. 24 More analysis of the actual sales is provided in the Market-basket portion of this report. 18

19 It is sometimes thought that initial spending on an activity accounts for all of its impact. This thinking is not accurate. At first glance it may appear that expenditures on electricity or on refrigeration equipment are the sum total of the impact on the local economy. However, one economic activity always leads to a ripple effect whereby other sectors and industries benefit from this initial spending. This inter-industry effect of an economic activity can be assessed using multipliers from regional input-output modeling. The economic activities of events are linked to other industries in the state and national economies. The financial expenses required to operate a store (stocking shelves, providing heat, refrigeration or water to specific foods, or operating cash registers) generate the direct effects on the economy. Regional (or indirect) impacts occur when these activities require purchases of goods and services such as building materials, energy or grocery carts, from local or regional suppliers. Induced impacts occur when employees, or staff at supplier firms, spend their wages in the region. The ratio between total economic and direct impact is termed the multiplier, and is calculated using an input-output model. This induced impact is the most controversial part of economic impact studies. In the case of this particular model, only the most conservative estimate of the induced impact has been used, and only those activities that occur in New Jersey are considered as part of the impact. The model also includes information on income received by the Federal, state and local governments, and produces estimates for the taxes at the Federal level including corporate income, payroll, personal income, estate and gift, and excise taxes; customs duties; and fines, fees, etc. State and local tax revenues include estimates of: corporate profits, property, sales, severance, estate and gift and personal income taxes; licenses and fees and certain payroll taxes. While IMPLAN is used to calculate the state level impacts, Infogroup data provide the basis for legislative district level estimates. Publicly available data at the county and district level is limited by disclosure restrictions, especially for smaller sectors of the economy. This model uses actual physical location data provided by Infogroup in order to allocate jobs and the resulting economic activity by physical address or when that is not available, zip code. For zips entirely contained in a single congressional district, jobs are allocated based on the percentage of total sector jobs in each zip. For zips that are broken by regional boundaries, allocations are based on the percentage of total jobs physically located in each segment of the zip. Physical locations are based on either actual address of the facility, or the zip code of the facility, with facilities placed randomly throughout the zip code area. All supplier and induced jobs are allocated based on the percentage of a state s employment in that sector in each of the geographic areas. Figure 6 Model of Changes in Retail Prices Under a $15.00 Minimum Wage Requirement Change In Minimum Wage Change In Wages Change In Labor Costs Retail Margins Change in Retail Costs Product Sales Estimate of Cost of Goods Sold Estimate of Retail Value Added Per Product Estimate of Labor Component In order to calculate these changes, the flow of wages was modeled through the retailing system using publicly available data. First, the store level product sales are allocated across Census level product categories. 25 Then using retailer margin data from the BEA, the value of the cost of goods sold (COGS) 25 US Department of Commerce, Bureau of the Census, Retail Trade: Subject Series - Product Lines: Product Lines Statistics by Industry for the U.S. and States: 2012, 2012 Economic Census of the United States, on-line at: 19

20 for each category was calculated by dividing the sales by the retailer margin. 26 Since retail labor is not incorporated into the wholesale price of the product, the (COGS) needs to be removed from the calculation. 27 Once the COGS are calculated, they are removed from the sales price to provide an estimate of the retail value added for each of the product categories. Retailers add value to products by providing them in an on-demand basis at an individual unit level. This means that these firms must pay for a range of goods and services including but not limited to: Insurance, financing, utilities, refrigeration, security, cashiers, stockers, buyers, etc. Higher minimum wages only impact the labor component of the value added, which in the case of supermarkets in New Jersey is about 42 percent of the value added component for grocers and supermarkets, 43 percent for specialty food retailers and 47 percent for convenience stores. 28 Once the labor component of each product in each store is calculated, the figure is multiplied by the percentage change in labor costs marked up using the retail margins. 29 This provides the overall change in prices (assuming 100 percent pass through of the wage increase) to consumers at each store. Retailers cannot pass on 100 percent of the cost increase to consumers. This is because higher prices, by their very nature, reduce sales. Product level demand elasticities were found from a variety of sources to help determine how higher prices would result in reduced sales. 30 These elasticity estimates were matched as closely as possible to the various product categories used in the analysis. Based on these elasticities and the increase in prices in each of the categories, the expected changes in product volumes that would result from the higher prices were derived using the formula: V = ε P The change in volume of sales (V) is equal to the elasticity estimate (ε) times the change in price or (P). As each of the stores sells less, they will need less staff. The reduction in sales is used to estimate these staff changes across each of the stores under a new $15.00 minimum wage. Demographic data are for the most part from the 2010 census as compiled by Caliper Corporation in its Maptitude database. 31 This provides information on the number of people in each income and demographic grouping. Overall spending by demographic group is from the 2014 Consumer Expenditure Survey. 32 Expenditures in each category were indexed to spending by each group, and then the indexed spending was multiplied by the share of that group with in a five-mile radius of supermarkets and a one-mile radius of other retail outlets. These shares were based on Census Tract level data as provided by Maptitude. 26 Based on Use Tables/After Redefinitions/Margin Details, US Department of Commerce, Bureau of Economic Analysis, on-line at: 27 For example, if a retailer sells a bag of flour for $5.00 and purchases the flour from a wholesaler for $4.00, the retail margin is 25 percent. Changes in labor costs occur on the $1.00 margin. 28 Labor margins are from the Input-output accounts of the United States as compiled by IMPLAN, Group LLC. IMPLAN Group LLC, IMPLAN System (data and software),16905 Northcross Dr., Suite 120, Huntersville, NC Based on 2014 IMPLAN tables. 29 Op. Cit. Bureau of Economic Analysis. 30 See: Anderson, Patrick L., et. al., Price Elasticity of Demand, November 13, 1997, at: US Department of Agriculture, Economic Research Service, Commodity and Food Elasticities, at: Gallaway, Michael P., et. al., Short-run and long-run industry-level estimates of U.S. Armington elasticities, North American Journal of Economics and Finance, March See: for more information on Maptitude and these data. 32 Consumer Expenditure Survey: 2014, US Department of Labor, Bureau of Labor Statistics, at: 20