A state bill passed in May 2019 and signed into law a month later dictated an automatic rise of $1 every 11 months until the minimum wage tops at $15. However, its impact on Connecticut’s economy, which ranks 49th nationally, may prove devastating.
The wage increase is a fatal blow to small businesses still reeling under the COVID-19 shutdown. Rising costs may derail the overall hiring by businesses rendering a part of the workforce unemployed. What initially seemed to be a positive step may do more harm than good.
In the last decade, the US economy grew by 19%. But Connecticut contracted by 0.5%, making it the worst-performing state. The wage increase may doom the struggling state economy, which plunged by 31% in 2020 due to the coronavirus pandemic. This clearly shows Connecticut is not economically prepared to absorb the wage hike impact.
Restaurants, services, and the manufacturing sector will bear the brunt. The minimum wage increase looks threatening for many small industries, the mainstay of Connecticut’s economy.
Those in favor of the wage increase claim benefits for 465,000 workers in the state. However, the increase in payroll costs may result in layoffs. Small industries that employ about half of the workers must reduce the number of either employees or hours to survive and operate on their budget. Many fear the high cost of hiring may cause stores, restaurants, and companies to engage part-time students or employees under 17, who are entitled to a lower wage, neglecting adult, full-time workers.
Businesses may favor automation over employees to save costs. For example, quick service and fast-casual restaurants may use touch screens or mobile apps to replace employees. There may be increased consolidation of responsibilities, leading to fewer openings and more layoffs. If a business cannot work with reduced employees, it is sure to hike charges for goods and services to cover costs due to the minimum wage increase.
The minimum wage hike will surely result in many workers losing state assistance. A higher income will put them above the threshold for receiving such assistance. If the state enhances the threshold to continue its coverage, it has to bear a staggering financial burden. We have already witnessed how hundreds of restaurants in New York City closed down, reduced their operational hours, or laid off staff to avoid additional financial burdens linked to the wage hike.
Connecticut is likely to see an exodus of businesses following the wage hike. The state’s business tax climate is already much-maligned after GE moved its Fairfield-based headquarters to Boston in 2016.
The minimum wage increase in a state with one of the highest per capita incomes may present the state as an unattractive option for companies to set up. This may have serious repercussions for the state revenues forcing spending cuts and shelving various projects.
Fewer industries mean fewer jobs for many in the state. Overall, analyzing the repercussions of the wage hike proves to be a step backward for a state that could truly benefit from all the economic support it can get.
