LI manufacturers retrench in face of minimum wage hike

New York State’s new, higher minimum wage is leading to drastic actions by factories on Long Island that produce food or drugs, have small staffs or use low-skilled workers on their assembly lines, according to executives and government records.

Framerica, a picture-frame manufacturer in Yaphank, canceled $3 million in building plans and equipment purchases. Uncle Wally’s, a Shirley-based muffin maker, won $1 million in tax breaks after threatening to lay off one quarter of its workforce. And Chembio Diagnostics, a medical device company with operations in Medford and Holbrook, will shift some production to a plant in Malaysia because of the rising minimum wage.

“We’re looking more and more toward automation and moving some of the work to the lower-cost facility” in Southeast Asia, said Sharon Klugewicz, president of Chembio’s Americas division.

The impact on manufacturers of increasing the state’s minimum wage wasn’t discussed much in the state Capitol last year when the legislature agreed to Gov. Andrew M. Cuomo’s ambitious proposal to hike the hourly rate from $9 to $15 over the next few years. The debate mainly focused on farms, retailers and other service businesses where a majority of employees earn the minimum wage.

Proponents of a wage hike said that raising pay would boost the economy because workers would spend more locally. Opponents said increasing the minimum wage would cost jobs.

Cuomo overcame opposition to the measure by including the wage raise in the 2016-2017 state budget, which had to be adopted in order to fund state operations.

In Nassau, Suffolk and Westchester counties the minimum rose from $9 to $10 per hour on Dec. 31, 2016, and it will rise by another $1 each year until $15 is reached in December 2021.

Manufacturing is usually thought of as a high-wage economic sector. But many factory jobs pay close enough to the minimum wage to be affected by any increase.

In New York State 34 percent of plant workers, or about 207,900, make less than $15 per hour, according to an analysis by the research firm Moody’s Analytics of U.S. Bureau of Labor Statistics data from 2014. Similar figures for Long Island weren’t available.

More than six in 10 manufacturers surveyed across the state in March by the Federal Reserve Bank of New York said the higher minimum wage had affected them.

“The potential for lost jobs is particularly acute, given that manufacturers face global competition,” said Moody’s economist Adam Ozimek. “If wages become too high in one place, it’s easier for a manufacturer than for, say, a restaurant to relocate operations.”

The Island has about 2,900 plants, according to the Workforce Development Institute, a statewide not-for-profit based in Albany. Together, their combined payrolls averaged 86,800 workers between 2011 and 2015, according to U.S. Census Bureau estimates.

Executives of Framerica Corp., the producer of high-end picture frames, were alarmed by the prospect of a $15 minimum wage, according to economic development officials and government records.

Framerica asked for additional tax breaks from the Brookhaven Town Industrial Development Agency weeks after Cuomo signed the wage hike into law in April 2016, IDA documents show. Company executives didn’t respond to repeated requests for comment.

“The new mandated minimum wage increase will no longer allow us to remain competitive,” Framerica senior vice president Dave Rosner wrote in a letter to the IDA obtained by Newsday under the state’s Freedom of Information law. “We are already at a substantial disadvantage compared to our competition who manufacture in business-friendly states such as North Carolina and Indiana or import from countries such as China.”

He estimated the higher minimum wage will add $3.5 million to Framerica’s costs through 2022. It had 184 workers last year.

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Rosner also said the family-owned business had scrapped a $2.3 million installation of solar panels designed to reduce electricity bills, and more than $500,000 in equipment purchases because of the higher minimum wage.

The Brookhaven IDA extended Framerica’s existing package of tax incentives for 10 years. The company will save an additional $1.2 million, according to IDA estimates.

The IDA, at the same July 2016 meeting, also granted a 10-year extension of tax breaks for the Uncle Wally’s muffin company. The extension will save the company $1.1 million, according to IDA estimates.

Uncle Wally’s executives Michael Petrucelli and Louis Avignone, in an IDA letter obtained by Newsday, said, “For us to remain profitable, 1 out of every 4 of our workers will lose their jobs.” The company employed 160 last year.

The executives projected the wage hike will add $7.2 million in costs through 2022. They sold Uncle Wally’s earlier this year and recently referred a reporter to the new owner and parent company, Give and Go Prepared Foods Corp. of Toronto, which declined to comment.

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Supporters of the $15 minimum wage, including Cuomo, dismissed the concerns of manufacturers such as Framerica and Uncle Wally’s.

“To the extent that you hear horror stories . . . I think those are anecdotal,” the governor told Newsday recently. “They are trying to exploit the situation to get government aid . . . Whatever story they can come up with to get government aid they will come up with.”

He also said raising the wage rate “had tremendous support from the business community across the board” last year. “We’ve heard nothing but positives since,” he said.

In terms of Framerica and Uncle Wally’s, Brookhaven IDA officials don’t believe the companies are bluffing.

“They are not just pounding their chest and blowing smoke,” said IDA executive director Lisa M.G. Mulligan, referring to Framerica. “They had been down [in other states] looking at buildings. They had made inquiries about how much it would cost to keep the operation going up here while they started an operation down there,” she said.

Other companies receiving help from the Brookhaven IDA have talked about canceling expansion projects or leaving Long Island since the state increased the minimum wage, though so far only Framerica and Uncle Wally’s have sought more tax breaks.

Not all local manufacturing executives feel burdened by the higher minimum wage. Some are even enthusiastic supporters.

“If you pay employees fairly, you will have less employee turnover, and that reduces your training costs,” said Jon Cooper, president of Spectronics Corp., a Westbury-based producer of ultraviolet lighting and fluorescent dyes used to detect fluid leaks in engines, machinery and cooling systems.

“You also will be helping the local economy, because if employees have more money in their pocket, they will spend it at local businesses,” he said.

All but a handful of Spectronics’ 180 employees earn more than the minimum wage.

Cooper, a former Democratic leader of the Suffolk County Legislature, spoke in favor of raising the federal minimum wage at a Capitol Hill news conference with House Minority Leader Nancy Pelosi in 2014.

Still, local executives’ frustration and, in some cases, anger at the higher minimum wage was evident in March at a two-hour meeting with state Labor Commissioner Roberta Reardon at Farmingdale State College, attendees said. About 80 people participated in the private session organized by the Manufacturing Consortium of Long Island.

Local factories face increased competition from most states and New York’s other regions because of how Cuomo and the legislature chose to implement the $15 minimum wage.

Only Arizona, California, Connecticut, Massachusetts, Oregon, Vermont, Washington state and Washington, D.C., match or exceed Long Island’s hourly minimum of $10 this year, according to the National Conference of State Legislatures. Employers must comply with state laws if they require a higher pay rate than the federal minimum of $7.25 per hour.

In New York, the $15 wage hike is being implemented faster in New York City and slower in upstate regions than in Nassau, Suffolk and Westchester counties.

“Why would I give business to a machine shop on Long Island when I could save money by going to Syracuse?” said Jamie Moore, the consortium’s president and co-founder.

He also said the types of manufacturers most affected by the higher hourly minimum have small workforces and rely less on technology than others, based on feedback from the consortium’s 54 members, who together have 4,000 employees. Pharmaceuticals and food production, among the fast-growing industries within manufacturing, have been hit hard.

Some factory officials said they are counting on yearly state reviews of the wage increase’s impact, starting in 2019, to prevent the $15 rate from being reached and to achieve possibly a rollback of past rises.

In the meantime, manufacturers are mitigating their higher labor costs by not hiring and asking current employees to do more.

Autodyne Manufacturing Co. Inc. in Lindenhurst has raised its qualifications for job applicants and the responsibilities of existing workers.

“The expectation of the entry-level employee will be greater, thereby lessening the choices for the inexperienced candidate, such as our American youth just starting out in the workforce, from being hired,” said Lindsay A. Howe, owner of the small business, which makes spare parts for U.S. military equipment.

At some factories, the higher minimum wage has led to a re-examination of production space with an eye toward installing robots and moving work to low-cost countries.

Chembio Diagnostics Inc., a maker of rapid tests for HIV, Zika and other tropical diseases, is investing in machines to do some work on one of its six production lines. The company has 142 workers locally.

In January Chembio purchased RVR Diagnostics of Malaysia, where it plans to make tests for sale in Asia and Africa. New York’s new minimum wage “was a big factor” in the deal, said Klugewicz, the Americas division president.

“Businesses have to get creative,” she said. “We’re looking at automation, facilities that can manufacture products at a lower cost point, and cross training our existing workers so they can do different jobs.”