A pandemic-driven labor shortage, detailed in an economic analysis by the state’s Department of Budget, has led the labor commissioner to order the hourly minimum wage upstate to increase by a dollar next year.

The minimum wage rate in New York City, Long Island, and Westchester County is already $15 per hour, after being phased in according to state law.

Outside of those three areas, the order calls for the minimum wage to go from the current $13.20 per hour to $14.20 per hour.

The state law, which requires an eventual $15-per-hour minimum wage statewide, also required the division’s analysis.

Among other factors, the analysis considers various measures of inflation, statewide average wages, labor productivity, the pace of the state’s labor market recovery, labor demand and supply, regional unemployment rates and other trends in the low-wage employment sector, and the impact of COVID-19 on the minimum wage workforce.

The order, issued by Labor Commissioner Roberta Reardon on Friday, will be enacted through rulemaking and is subject to public comment before a final decision is made. New Yorkers may email comments to by Dec. 11. If accepted, the wage increase would take effect on Dec. 31.

“The adverse impact that the Covid-19 pandemic has had on low-wage workers and the slow recovery of low-wage employment relative to the remainder of the private sector remains the overwhelming message of virtually every source of New York employment data,” the report from the Department of Budget says.

“By raising the minimum wage incrementally, New York State is helping businesses adjust to the new rate, while giving low-wage workers the ability to better participate in our economy,” said Reardon in Friday’s press release announcing the order. “Continuing with the multi-year plan to raise the minimum wage is in line with market standards and ensures that no worker is left behind.”

An average of 200,000 New Yorkers in upstate counties will benefit from this wage increase, 44 percent of which are full time workers and of those, nearly 25 percent are supporting children below age 18, the release said; in addition, this increase will help to close the gender pay gap, providing an estimated 110,000 women with greater financial stability.

DOB findings

Key findings from the Department of Budget’s report include:

— Regional unemployment rates outside of New York City are at historic lows. The 3.1 percent rate for this area for the four months from April through July 2022 is the lowest in the history of the data going back to 1976 and is lower than the national 3.5 percent rate for the same month. These data confirm the unprecedented tightness of the state labor market outside of New York City;

— Low-wage industries are overrepresented among the state’s remaining job losses due to the early impact of the pandemic. Although the minimum wage workers’ share is likely to rise as the low-wage sector recovery proceeds, the size of the minimum-wage workforce is likely to continue to be constrained by a rise in entry-level wages as firms compete for workers;

— New York has a job gap of 351,000 relative to its pre-pandemic peak while national employment is now above its February 2020 pre-pandemic peak. Anecdotal evidence combined with alternative data sources argue that labor shortages could account for much of New York’s remaining job gap, particularly upstate; and

— As with the rest of the nation, the New York labor market is expected to continue to slow in the coming months. Because of the importance of financial markets to the state economy, the Federal Reserve’s apparent shift to aggressively battling inflation will have a disproportionate impact in New York. State employment is not expected to reach its pre-pandemic level until 2026.

The state’s 2022 minimum-wage workforce was expected to be about 14 percent — or 1.3 million — of New York workers; instead, due to the pandemic, it appears to have fallen below 10 percent, the report says.

The report also notes “some subtle shifts in the profile of minimum wage workers” such as the age profile shifting in favor of older workers. However, female, non-white, part-time, and young workers are still expected to be overrepresented within the minimum wage workforce relative to the workforce overall.

Reduced rates of immigration are another factor constraining labor supply, the report says. International immigration had been falling both nationally and in New York since spiking in 2016, “and took a nosedive during the pandemic as a result of the myriad travel bans put in place to stop the spread of Covid-19,” the report says.

U.S. net immigration fell by approximately 324,000 or 57 percent between 2019 and 2021; net immigration to New York similarly fell by 23,000 or 56 percent over the same two-year period.

“The decline in the number of foreign workers could be of particular concern for New York given their importance to the leisure and hospitality sector,” the report says.

So-called “long COVID” may also restrict the workforce. Citing Census Bureau survey data collected in June 2022, the report says about16.3 million working-age adults, aged 18 to 65, suffer from long COVID nationally. The number of these adults estimated to be out of work reportedly due to long COVID ranges from 1.8 million to 4.1 million.

Citing recent Job Openings and Labor Turnover, or JOLTS, data, the report says, as of July 2022, there were 11.2 million job openings in the U.S., implying that long COVID could account for 16 percent to 36 percent of the current labor shortage.

Also, an accelerated rate of retirement during the pandemic accounts for a significant portion of the labor shortage. The report cites a study, “Where Have All the Workers Gone? Recalls, Retirements, and Reallocation in the COVID Recovery,” finding roughly half of the decline in the civilian employment-to-population ratio from its pre-pandemic level is due to workers aged 65 and older leaving the labor force at unusually high rates.

Further, the study finds evidence of increased movement out of low-wage service jobs and into professional and other occupations that tend to be both higher paying and offer lower exposure to health risks. Thus, these excess retirements “appear to have facilitated movements up the job ladder for lower skilled workers.” These results help to explain the large wage increases recently observed in the low-wage sector, the Department of Budget report says.

Reporting on the economic outlook, the Department of Budget report says, “The U.S. and New York economies are facing considerable headwinds. Inflation is at 40-year highs. The vestiges of the COVID-19 pandemic continue to vex a nation that is hungry for normality. The war in Ukraine could have a sustained effect on food and energy prices, even as supply chain woes resulting from pandemic lockdowns gradually resolve.

“The housing market is in the throes of a major adjustment due to the increase in remote work while simultaneously being in the crosshairs of Federal Reserve monetary tightening, with mortgage rates hitting 6 percent for the first time since the fall of 2008. Equity prices, as represented by the S&P 500, lost over 20 percent of their value over the first six months of 2022 and remained 17.5 percent below their January 3, 2022, value as of the end of August ….

“While the strength of the labor market has been a bright spot, it too is slowing. Total nonfarm employment rose above its pre-pandemic level in July 2022, but U.S. nonfarm employment growth is expected to decelerate from 3.9 percent for 2022 to 0.8 percent for 2023.

“The U.S. unemployment rate regained its pre-pandemic low of 3.5 percent in July 2022, but it is expected to increase in the second half of 2022 and to continue rising to 4.1 percent in 2023 from 3.7 for all of 2022.”