April 5, 2013. Unless disclosure requirements are clarified, we’ll probably never know exactly how much Walmart and other large, low-wage employers receive in government subsidies under New York’s new Minimum Wage Reimbursement Credit (MWRC). But based on the best data available, we estimate that Walmart is likely to receive MWRC subsidies of between $53 million and $85 million over the next five years.
New York’s new MWRC will provide employers a tax credit for the hours worked by students between the ages of 16 and 19 who are paid at exactly the minimum wage. As our earlier explanation and assessment of this truly perverse measure explains, it would pay employers 75 cents an hour for each such student employed at the minimum wage of $8 an hour in 2014, $1.31 an hour for each such student paid $8.75 an hour in 2015, and $1.35 an hour for each such student paid $9 an hour in 2016, 2017 and 2018. Employers would get these credits even if the jobs involved had been previously filled by adults or non-student teenagers, and even if the jobs involved had been filled at higher wage rates in 2013. The resulting “bonus” for employers who hire one or more students in place of a full-time adult worker would be substantial, rising as high as $2,808 a year per worker. ($2,808 is the $1.35 tax credit times 40 hours a week times 52 weeks.)
Even though there’s no compelling evidence that a moderate minimum wage increase harms any business, the new MWRC has been made available to all employers, even the largest ones. Large employers of low-wage workers, such as Walmart, will reap the greatest windfalls from this credit.
Walmart has over a hundred stores in New York State and employs an estimated 28,500 workers. Government data for New York indicate that for discount retailers like Walmart, teenagers who are in school account, on average, for 11.3% of their workforces, and that these teenagers work an average of 18.7 hours per week, or 972 hours on an annual basis. Thus, if Walmart followed the broader employment pattern in the state, and if it paid all its teenage student workers at exactly the minimum wage, it would get a subsidy of $19 million over the next five years.
But a large multinational corporation like Walmart knows a thing or two about extracting subsidies from state and local taxpayers. By one estimate, Wal-mart has gotten $1.2 billion in subsidies from state and local taxpayers around the United States. So there is every reason to believe that they will seek to maximize what they can get from this new pot of taxpayer largesse.
About 18% of the teenagers that discount retailers employ are not students. Businesses like Walmart might start hiring just student teenagers because non-student teenagers wouldn’t generate a dime in MWRC subsidies. And they might also decide to hire student teenagers in place of adults. The legislation establishing the MWRC says an employer “shall not discharge an employee and hire an eligible employee solely for the purpose of qualifying for this credit,” $2,800 per year per full time equivalent position might tempt a large company to gradually replace adults and non-student teenagers in ways that stay on the right side of the law.
If a large employer like Walmart managed to hire 10% fewer adults and hire more teenaged students in their place, the five-year taxpayer subsidy would jump to $53 million. Hiring 20% fewer adults and more teenaged students in their place would boost the potential subsidy to $85 million over five years.
New York State’s new MWRC requires close scrutiny, not only because it is a huge new tax break for businesses, but because it could have adverse effects on the employability of struggling adult workers and because it incentivizes keeping wages right at the minimum. Public disclosure of how much individual companies receive under the new MWRC is essential if New York is to effectively evaluate the MWRC’s fiscal and economic impact. New York’s much more accountable Youth Works tax credit already requires participating employers to agree to the disclosure of their participation and disclosure of the credits that they receive. Albany needs to require such disclosure under all business tax credits including the new Minimum Wage Reimbursement Credit.