The Political Economy of New Jersey’s Minimum Wage

Barring any last-minute surprises, New Jerseyans are poised to head to the polls on Tuesday ready to take the paradoxical step of reelecting Republican Governor Chris Christie by an overwhelming margin at the same time that they amend the state constitution to raise the minimum wage to $8.25 and to provide for automatic cost-of-living adjustments (COLAs) in the future. Paradoxical because of the fact that Christie publicly opposes the ballot measure, and vetoed a bill passed by the Legislature earlier this year that would have enacted a policy almost identical to the one now being put to the voters.

In a statement following his conditional veto of a measure that would have raised the state minimum to $8.50 from the current federally-mandated floor of $7.25 while also instituting annual COLAs, Christie argued that the “sudden, significant minimum-wage increase in this bill, coupled with automatic raises each year tied to the United States Consumer Price Index, will jeopardize the economic recovery we all seek.”

Democrats in the Legislature argued at the time that Christie’s action was one he would come to regret, and that the opportunity to put the issue before voters in November would ultimately redound to their own political benefit. The electorate might not have been enthusiastic about the party’s little-known gubernatorial nominee, State Sen. Barbara Buono, but the minimum wage question would, according to this line of thinking, prod Democratic leaners to show up at the polls and allow the party to tap an otherwise unmotivated reservoir of anti-Christie votes. The excitement generated by a referendum campaign would help to make up for the enthusiasm gap left behind when better-known Democrats like Cory Booker – who, as the Star Ledger put it last December, “picked a cozy run for Frank Lautenberg’s Senate seat over a bare-knuckle brawl with the big man” – took a pass on the race.

But with polls now projecting that both Christie and Question Two will easily prevail, it is clear that this strategy failed to deliver. That said, the Democrats were not necessarily crazy for believing it would improve their chances; Christie just happens to be an exception to this particular rule of political thumb. The minimum wage has always been an effective cudgel with which Democrats can beat up Republicans. The policy is easy to understand and speaks to the personal experience of a sizeable fraction of the American population (even though only a small share of the workforce is earning the minimum wage at any given moment in time, the proportion of workers who have ever earned the minimum at some point in their lives is much higher).

The most common argument against raising the minimum wage, like many arguments proffered by Republicans in defense of less government regulation, relies on an apparent counterintuition. Claims that low-income people are hurt the most by policies that require employers to pay their low-income workers more, whatever their validity, resonate less with voters than the simple populist refrain that wealthy business owners can afford to (and therefore ought to) share more of their surplus with the little guys. For that reason, Republicans will almost always be at a rhetorical disadvantage whenever the issue comes up. Those who are worried about the party’s long-term viability and competitiveness in national elections should be eager to find some way to take it permanently off of the table.

Ten states have minimum wages that are indexed to inflation. Both Barack Obama and his former challenger Mitt Romney are supportive of inflation indexing at the federal level, yet congressional Republicans continue to block the proposal. By doing so, they only guaranteed that the issue will be resurrected by their opponents again and again. Perhaps Christie had all of this in mind, and vetoed the original bill in an attempt to let the Democrats resolve the issue for good without having to alienate his allies in the business community. Not that he didn’t alienate them anyway, though; some business groups are just as opposed to automatic minimum wage hikes as they are to ad hoc ones. The National Federation of Independent Business, a conservative advocacy group best known as the lead plaintiff in the Supreme Court case that upheld the Affordable Care Act, recently tweeted that it is inappropriate to use constitutional amendments as a vehicle for making economic policy (given their support for state amendments prohibiting individual health insurance mandates, one suspects that this position is one of expedience rather than principle).

NFIB believes that allowing a provision like this to make it into a state constitution will make it harder to remove or amend when the injurious side effects of an ever-higher minimum wage begin to materialize. Even if their warnings about these effects are overblown, they may have a point: on my reading, the ballot measure only provides for increases in the minimum during years in which the Consumer Price Index rises, meaning that it would remain flat in the event that the CPI stagnates (similar to the way that COLAs work for Social Security). This means that a relatively severe bout of deflation could lead to a sharp increase in the minimum wage in real terms, potentially increasing the severity of an economic downturn.

How exactly this scenario would play out is an open question that will have to be left to empirical economic research, but all else equal, policymakers would indeed find it more difficult to tinker with the law if it were embedded in the constitution rather than dictated by statute. Early in his first term, Governor Christie advocated amending the state constitution to cap local property tax increases, though he ultimately struck a deal with the Legislature to enact a statutory cap instead. This was seen at the time as a victory for the Democrats, since a statutory cap would be easier to undo if, as many of them predicted, towns and municipalities found it too onerous to abide by the caps without sacrificing vital priorities.

All of that said, conservatives should still on balance find the idea of minimum wage COLAs appealing. They reduce uncertainty for businesses and make it easier for them to plan for the future. Instead of large, discrete hikes in the minimum that can come at unexpected times and be driven by the vicissitudes of public opinion and the vagaries of the political cycle, all future increases under such a policy regime would be modest and would occur at regular intervals. In response to Christie’s conditional veto of the original minimum wage legislation, Senate President Steve Sweeney declared that “[Christie’s] action shows that he believes politics and politicians need to remain part of the process on minimum wage… I think they need to be removed from it entirely.” Shouldn’t conservatives worried about the threat posed to the private sector by uncertainty be supportive of making labor market regulations more predictable?

Both Christie and the business community will likely come to be thankful for the fact that the minimum wage will never again be a subject of debate in New Jersey (if they don’t quietly believe this already). Democrats, in achieving a spectacular policy victory, will have relinquished a reliable political weapon. Imagine the benefit to the national Republican Party if it too came to grasp the deep logic of this issue and disposed of it once at for all at the federal level. Can anybody think of some candidate who, come 2016, might be able to help it connect those dots?