New Jersey’s Minimum Wage: Government vs Academia

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On November 5th, 2013 the People of New Jersey overwhelmingly approved a constitutional amendment that would change the state’s pay scale. The referendum raised the wage from $7.25/hr to $8.25/hr as of January 1st, 2014, and from 2015 forward, the wage would need to be annually adjusted to the cost of living. The following is the exact language as it appeared on the ballot in 2013: “Do you approve amending the State Constitution to set a State minimum wage rate of $8.25 per hour? The amendment also requires annual increases in that rate if there are annual increases in the cost of living”.

An announcement from New Jersey’s Department of Labor on September 30th, 2014 declared that the state’s minimum wage would increase to $8.38/hr on January 1st, 2015 in order to adhere to the constitutional amendment set forward by the State Legislature, which included language within the amendment to use the consumer price index to annually adjust the minimum wage. The Department of Labor cites an increase of 1.59% of the consumer price index as the reason to increase the hourly wage by 13 cents.

There are several academic entities that suggest New Jersey’s 2015 minimum wage should be much higher than a mere 13 cent increase if New Jersey lawmakers followed the constitutional amendment as it is written. For example, last year, MIT projected New Jersey’s cost of living for a single adult to yield a needed $11.13/hr wage. Within MIT’s database, every state and just about every town in the country has a calculated wage that corresponds to the cost of living. In May of 2013, the Legal Services of New Jersey Poverty Research Institute projected the state’s cost of living to yield a $13.75/hr wage for a single adult. There is a clear difference between a wage adjusted to the Cost of Living, and one adjusted to the Consumer Price Index. The United States Department of Labor even elicits several differences between the two on their website. The Consumer Price Index can be used to calculate the Cost of Living, but in no way is it intact the Cost of Living.

This year there was an increase, however, since the consumer price index accounts for 49 other states in the nation, it is possible that in the future, the consumer price index will drive New Jersey’s minimum wage down. Such an event would be especially harmful to New Jersey residents since the Garden State is regarded as the fifth most expensive state to live in throughout the entire nation. Events happening in Montana should not reflect what New Jersey residents are paid.

Most importantly, though, is the literal fact that New Jersey residents did not approve their minimum wages to be adjusted to the consumer price index. It was not mentioned anywhere on the ballot. Because of this inaccurate adjustment, workers will be subjected to salaries that lay $6, 419.60 below the national poverty threshold in 2015. Interpretation should be straight forward here; more than 6K below what the nation considers to be an impoverished life style, is in no way coherent to the cost of living.

Bottom Line: New Jersey lawmakers need to acknowledge the difference between the CPI and COL, and they need to approve a cost of living methodology so it can be applied to the amendment as it should have been two years ago.

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