SPRINGFIELD, Mass. (WWLP) – Massachusetts has recently seen the state’s minimum wage increase to $15 per hour, but experts say that it’s not keeping up with inflation.

The change in pay is just over a 5% increase, which is less than the current rate of inflation. The consumer price index shows a 7% increase in the price of all goods in the last year.

“If you said 2 or 3 years ago, everyone is getting a 5% increase, you would’ve said wow that is great, but if you do the math you really haven’t gotten an increase at all and have fallen behind,” said AIC economic professor John Rogers. “I think that is the problem, the labor market is going to push people to pay higher wages simply because the cost of living keeps going up, and need more money to survive. But those wage increases probably aren’t going to keep up with inflation at the current rate.”

Rogers adds his thoughts on whether the wage increase will have trivial effects on inflation. “Now we all hope all these measures that are being taken, will bring the rate of inflation down, but we really haven’t seen that yet. We’ve sort of seen it peak out, but it’s still pretty high and anybody who goes to the grocery store can attest to that,” he said.

UMass Amherst Gerald Friedman Professor of Economics agrees. “It will help low-income people cope with higher prices and will have no effect on inflation,” he said. “Most of the products consumed by residents of the Commonwealth are imported or have prices determined outside of the Commonwealth.”

“The only area of inflation that might be affected would be housing prices if there is an increase in demand for housing,” Friedman expressed. “But housing is highly income inelastic, people need a place to live, and I don’t think that raising wages at the bottom will have much effect on housing demand!”

In the case of employees who earn less than the minimum wage, the new $15 will give them an increase, but employers will pay more for those employees. Rogers told 22News that in the restaurant industry, for instance, the pandemic has adversely affected businesses for several years, and many are struggling with the cost of labor. The minimum wage increase will lead to more difficulties if it increases the cost of labor.

According to Rogers, it seems that some local restaurants just can’t deal with these constant minimum wage increases, it just doesn’t work. That the economy in which we live has a fair number of low-wage jobs, where people are paid according to their productivity.

Rogers says that employers could potentially employ fewer workers than they would have under a low minimum wage. This could be done with the affordability of hiring someone and making them productive.

Employers can invest in productivity with training, technology, equipment, better job design, and better communication. “All of those things will make people more productive and have companies wait to pay them more because they are getting a return on that investment,” Rogers expressed.

Rogers implies restaurants that are operating in tight situations, where they aren’t luxury restaurants and can raise their prices easily, may be the type of business to be affected by this. Due to their wage rates going up faster than they can recover from the effects of a slowdown and pandemic. Essentially making wage increases hard to keep up with.

“I think customs and habits are hard to break and I think Americans are used to this system, Rogers explains. “So, I think changing it is pretty low, even though in theory I think it is a good idea. Just to have a straight minimum wage is just what you get paid, that includes the service charge, and not having to worry about tipping.”

For businesses looking to stay solvent and retain employees, Rogers says you’re looking to pay at least $20 an hour these days in most businesses. “There are low-wage sectors where they aren’t just able to afford that,” he said. “For the most part, I think people are going to be added or above the new minimum wage of $15.”

At $12 an hour, you might be productive, but at $15 an hour, you may not be. It is up to employers to find a way around that. But, Rogers says given the tight labor market, most people are going to have to pay $15 anyway to get the help they need.

“I don’t think that it is going to have a numerical impact in the short term,” Rogers said. “If we get into a period of higher employment, which is possible with this recession everyone is talking about, you’re just going to have to be more careful with your costs, and your just going to have to apply as many people.”

Employers are ultimately focusing on their bottom line and controlling costs. If you are in an intensive labor business like warehousing, services, or restaurants, the biggest cost is labor and business owners are doing what they can to minimize or control that cost.

There could also be cutbacks in bonuses and benefits such as paid time off, sick leave, and medical insurance. There are social security, voluntary benefits, or discretionary benefits like health insurance to keep in mind.

“I think there is no simple solution, the economy works in a free enterprise system by employers figuring out what their costs are and what they can afford to pay people in order to make a profit, that’s what is going to drive their decisions,” Rogers said.