2007 Spring Business Climate Survey Analysis

Job opportunities lost because of state minimum wage hike

As predicted by many business groups Pennsylvania employers are reacting to the recent increase in the state’s minimum wage by hiring fewer unskilled workers, not hiring new employees and even reducing the number of people they employ. This as the Lincoln Institute’s Spring 2007 Keystone Business Climate Survey finds a spike in the number of employers who say the commonwealth’s business climate has gotten worse over the past six months.

The hike in the minimum wage, intended to help lower paid workers, is actually having the effect of reducing job opportunities for unskilled labor. Twenty-seven percent of the businesses surveyed by the Lincoln Institute said they have decided not to hire teen or inexperienced workers as a result of the minimum wage increase. Another 26% said they are now not hiring new employees. Twelve percent of the respondents said they have cancelled or postponed expansion plans due to the inability to afford the new government mandated wage, six percent said they have cut their hours of operation, and another 2% have had to actually lay off employees due to the minimum wage hike.

Pennsylvania employers, already in a dour mood over the condition of the state’s business climate, became even more pessimistic over the past six months. Forty-nine percent said business conditions in the state have gotten worse in recent months. Comparatively, the Keystone Business Climate Survey taken in the spring of 2006 found 33% of the businesses felt economic conditions had worsened, and 34% had that view in the fall 2006 survey. Ten percent of those responding to the current survey said business conditions had improved in the state, down from 12% in the spring and fall surveys of 2006.

There is also growing pessimism about the future. Forty percent said they expect Pennsylvania’s business climate to continue eroding over the coming six months. That is up from the 35% who feared a further decline in the business climate in the fall 2006 survey.

Confirming responses to the question on the minimum wage, 24% of the employers said they have fewer employees now than they did six months ago – that is up from the 17% that reported job cuts in the fall 2006 poll. Slightly more companies (32%) said sales have increased in the past six months than reported sales decreases (30%).

Despite the replacement of nearly one-fourth of the members of the General Assembly and a turn-over in top legislative leadership positions, the business community’s view of state government continues to erode. Only 11% hold a positive view of the job performance of the state House of Representatives, down from 17% last fall. Conversely, Respondents holding a negative view of the House’s performance rose from 63% last fall to 74% in the current survey. The state Senate’s negative rating rose from 63% last September to 67% in the current survey. Governor Ed Rendell’s job approval rating – already low at 19% – dropped to 15% in the spring survey while his negative rating went up from 73% to 79%.

Among the factors contributing to the Governor’s low approval ratings is business community opposition to his proposed 2007-2008 state budget – 81% oppose it – and disapproval of his plans to raise the state sales tax: 70% strongly oppose the tax hike and another 13% somewhat oppose it for a total of 83% in opposition. Seventy-four percent of those responding say they also oppose the Governor’s “Prescription for Pennsylvania” health care proposals.

The Lincoln Institute’s Spring 2007 Keystone Business Climate Survey was conducted electronically from March 15, 2007 through March 29, 2007. A total of 155 employers responded to the survey. Complete numeric results can be obtained here.