How will raising the minimum affect the economy?
By Deborah Jeanne Sergeant
New York’s statewide minimum wage increased by 50 cents on Jan. 1 this year and is scheduled to increase again by 50 cents on Jan. 1, 2026.
While this can help people who are in entry-level jobs bring home more bacon, the measure also raises concern that small businesses won’t keep pace with the raise.
Elvis Mehmedovic, franchise owner of Express Employment in Syracuse, isn’t concerned about a dramatic effect on small businesses.
“So far when the minimum wage went up to $15.50, we had only one person on assignment who had to be brought up to $15.50,” Mehmedovic said. “Because it was known that it’s going up, most places have been preparing in advance, setting it as $16 for a starting place. Most of our clients are small businesses. Most were already above that level.”
He believes that more than other employment sectors, retail and hospitality may be most affected, as food service typically functions under different minimum wage laws and fast-food chains usually pay at a higher rate anyway.
In addition, “some older companies that have been around a long time and have a higher number of people on staff could be affected,” Mehmedovic said. “We haven’t seen much effect.”
He explained that one reason that many of his client companies had already raised their starting rate is that COVID-driven inflation pushed their starting rates up. The market drove rates and so far, those rates haven’t gone down because inflation has not decreased. Since employers in many sectors have struggled to fill entry-level positions for the past five years, offering a higher starting payrate has helped keep those essential roles filled.
“Maybe there’s been internal discussion about shrinking their workforce by an individual or two,” Mehmedovic said of smaller companies. “But as for that being a big sticking point, they were applying a higher wage of even $16 an hour two years ago.”
It’s tough for many companies. But the higher cost of raw materials plus offering a higher payrate won’t force companies to accept a loss. Mehmedovic said that companies feeling the pinch likely have cut employee benefits to accommodate higher payrates. They may reduce their healthcare plan to the bare minimum or eliminate unessential benefits. Many have lopped off extras from the budget like the company picnic or other frills.
The more pervasive effect of a higher starting payrate may be what Michelle Jevis calls a “ripple effect” on wages across an organization.
“As traditionally minimum-wage positions increase their wages, other higher-paying roles may also see an increase,” said Jevis, who is certified as a professional in human resources and serves as president at CR Fletcher Temps and Industrial in Syracuse.
If people filling an entry-level role receive pay close to that of someone with longer tenure and more education, skills and experience, it’s logical that the higher payrates will also receive a bump.
Like Mehmedovic, Jevis thinks that companies simply make up for payrate increases in other ways.
“Higher wages may lead to companies needing to cut costs in other areas, including hiring initiatives, leading to more job automation or integrated technology,” she said.
As robotics, AI and other technology continues to progress, companies will need fewer entry-level employees. For example, in healthcare, automating appointment reminders can reduce the number of schedulers hired by a health system. In agriculture, technology is reducing manual labor tasks. Robotic milking systems dramatically reduce the number of employees needed to milk cows. Farms are also embracing drone technology to scout fields and spray crops and using GPS-guided tractors. In food service, kiosks have replaced order takers at many restaurants and some use robots to deliver drinks and food to tables.
Although the upfront cost of this type of technology is steep, forward-thinking employers who see a never-ending hike to entry-level wages view the investment as worthwhile.
