New York State Budget

New York’s Minimum Wage Hike Has a Big Catch

New York tied its minimum wage to inflation — but exceptions in Governor Hochul’s plan will likely cancel wage increases in many years.

Sam Mellins · May 5, 2023

Governor Kathy Hochul highlighted budget investments to support workers in New York City on May 4, 2023. | Don Pollard / Office of Governor Hochul

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Legislators clapped politely at several moments in Governor Kathy Hochul’s State of the State address in January, but only one line got a 30-second standing ovation.

“As a matter of fairness and social justice, I’m proposing a plan to peg the minimum wage to inflation. If costs go up, so will wages,” she said to loud and extended applause. “This important change will give over 900,000 minimum wage workers a lifeline.”

New York’s final budget, approved this week, made good on the pledge. New York’s minimum wage — currently set at $15 in the New York City area, and $14.20 upstate — will rise by 2026 to $17 in the New York City area and $16 upstate. Further increases will be tied to inflation, a measure meant to ensure that the lowest-paid workers’ wages keep up with the cost of living.

There’s a catch, though: The automatic increases will be canceled if unemployment is up. If New York’s employment level is lower in July than in January and April, there will be no increase in the next year. The same applies if unemployment is at least half a percentage point higher at the three-month stretch ending in July than the lowest it’s been in any three-month stretch in the previous year — if the average is at 4.5 percent in March and rises to five percent in July, for example, the increase will be called off.

“Like other states that have implemented this policy, we’ll put on guardrails to make sure that employers, the increases are predictable for them,” Hochul said as the applause quieted down.

Assembly Speaker Carl Heastie, Governor Kathy Hochul, and Senate Majority Leader Andrea Stewart-Cousins before three tall stacks of paper.

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The cancellations are likely to be triggered fairly frequently: The benchmarks that would prevent an automatic raise have been hit six times since 2000, according to an analysis shared with New York Focus by James Parrott, director of economic and fiscal policies at the New School’s Center for New York City Affairs.

They also make New York an outlier. Nineteen other states and the District of Columbia tie their minimum wage to inflation, or will begin to in coming years. Only one mandates that high unemployment blocks wage increases.

That exception is Michigan, which cancels automatic minimum wage increases if unemployment is above 8.5 percent, following a law passed by a Republican governor and a Republican-controlled legislature in 2018.

The Michigan law “was basically part of a package of legislation watering down a stronger minimum wage,” said Paul Sonn, state policy program director at the National Employment Law Project. Voters had been set to consider a ballot initiative to enact a bigger minimum wage hike, without the exception for unemployment, that was canceled when the legislature preemptively passed the proposal. Then, after the election, the legislature amended it to add the exceptions.

In New York, the coalition of labor and advocacy groups that fought to raise the minimum wage were opposed to the exceptions. But they weren’t front of mind for the coalition, which focused most of all on securing a bigger wage hike, said Parrott, who did research on behalf of the coalition — in part because they didn’t think they’d make it into the final version.

“We really thought that that wasn’t the main issue because we didn’t sense that there was appetite for it in the legislature,” he said. “We underestimated the degree to which they totally caved to the governor.”

The New York AFL-CIO asked lawmakers to oppose the exceptions in a letter sent on March 10. “We urge that this proposal be rejected as it is during these times that workers most need the increases,” AFL-CIO president Mario Cilento wrote.

But on May 4, at a rally with Hochul, Cilento voiced full-throated support for the final deal. “Raising and indexing the minimum wage: It means that every day, minimum wage earners in this state are going to be a little better off,” he said. “On behalf of working men and women from Buffalo to Brooklyn to Long Island and everywhere in between, governor, we say thank you.”

Hochul spokesperson Justin Henry did not answer New York Focus’s questions about the exceptions, but pointed to Hochul’s statement announcing the increase.

In the run-up to the budget, New York’s legislature had signaled support for a more ambitious minimum wage plan than Hochul’s. The Assembly’s budget proposal suggested that automatic increases tied to inflation “should not be subject to exceptions.” The Senate’s plan said that the minimum wage should be hiked immediately (it didn’t specify by how much) and then tied to inflation.

The final agreement is more generous than Hochul’s original proposal. But it’s far less than several major labor unions and aligned legislators were pushing for: $21.25 by 2027, indexed to inflation thereafter. They had harsh words for the more limited version in the final budget.

“To say I’m disappointed is an understatement,” said Senator Jessica Ramos, who chairs her chamber’s labor committee and pushed for the bigger raise. “I would love to know who was the economist who said that $17 an hour and all of those off-ramps are something that makes sense for this economy.”

“To say I’m disappointed is an understatement.”

—State Senator Jessica Ramos

The $21.25 number was based on calculations that New York’s $15 minimum wage would reach that level by 2027 if it had been tied to inflation when it was enacted. Record-high inflation in recent years means that the minimum wage is worth about $2.50 less than it was when it took effect in 2019.

Under the plan in this year’s budget, the minimum wage could well have less purchasing power in 2026 than it did in 2019, even if inflation shrinks from recent record highs, Sonn said.

“Her proposal never accounted for the period of greatest inflation that we’ve had in the last 50 years,” Parrott said. “She’s basically saying, ‘We’re going to ignore that period of inflation and we’re going to start at some point in the future.’”

It’s a striking development for the state that in 2016 was first in the nation to pass a $15 minimum wage, albeit phased in over multiple years. That wage increase was championed by Democratic Governor Andrew Cuomo, who muscled it through a partially Republican-controlled legislature.

New York has since lost its top spot: Other states and cities, such as California and Washington, have raised their minimum wages above $15. They’re projected to continue to lead New York, since their minimum wage laws also have automatic increases.

“Under Governor Cuomo and the Republican-controlled state Senate, New York led the nation,” Sonn said. “Now, New York is really lagging far behind.”