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It seemed like a simple stroke of good fortune for America’s lowest-paid workers when President Bush signed into law a large increase in the federal minimum wage. But the effects of the raise on these and better-paid workers -- and the question of whether the increase will kill jobs -- will play out in businesses large and small for years to come.
The facts: Workers toiling at the hourly minimum wage of $5.15 or at state minimums up to $7.24 will see their pay rates climb to $7.25 an hour over the next two years. The minimum is scheduled to increase by 70 cents on July 24 each year from 2007 through 2009.
Labor advocates are almost uniformly bullish on the pay raise. “This is a long- overdue victory for low-wage workers,” says Liana Fox, an analyst with the Economic Policy Institute. “The existing minimum wage is at its lowest real value in 50 years.”
For minimum-wage earners, who have gone a record 10 years without an increase, the raise will be huge, upping full-timers’ annual pay from about $10,700 to just over $15,000. “A little more than $10,000 a year just isn’t enough,” says Catherine Ruckelshaus, litigation director at the National Employment Law Project.
“The wage floor is important for workers at all levels,” she says. “If the drywallers and the laborers at the low end are making the minimum, then everyone else’s wages at the same job site are also low.”
In 2006, some 1.7 million workers were paid the federal minimum of $5.15 or less per hour, representing just 2.2 percent of the hourly labor force, according to the Bureau of Labor Statistics. (Some categories of workers, such as tipped restaurant employees, legally can be paid less than the minimum.) Nearly three-quarters of these workers were in service occupations, such as hospitality and food preparation.
But the increase’s effects will be much more widespread. The law will raise the wages of 5.6 million workers who now earn between $5.15 and $7.25 hourly, and should also give a bump up to another 7.4 million people earning a bit more than the new federal minimum, according to an Economic Policy Institute analysis.
Most States Have Set Higher Minimum Wages
But the federal minimum doesn’t tell the whole story. About 30 states and the District of Columbia have established higher minimum wages that automatically prevail over the federal standard. Most of the states whose lowest-paid workers get the federal minimum are in the Southern, Plains and Mountain West regions, which include a number of the least-populous states.
By July 2009, when the increase has been fully phased in, just 12 states will have minimum wages above the federal standard, according to an Economic Policy Institute analysis of BLS data. That means employers in about 18 states will have to fork over more pay for their least-expensive workers.
“When Florida’s minimum wage went up to $6.67 per hour, managers said, ‘Now I have to boost my best people up to a level above that to keep them happy,’” says Ruth Storrings, director of human resources services at AlphaStaff Group, an HR outsourcer in Fort Lauderdale. “There will be a number of managers who will say, ‘That’s going to hurt my business.’ Fast food and lawn services might be hurt.”
Some Economists, Business Owners Say Hike Will Kill Jobs
Even proponents of the federal increase acknowledge it will come at a substantial cost to some employers -- and may prompt them to eliminate some low-paying jobs or cut back hours.
“There are a fair number of economists who believe the minimum-wage increase will cause workers to lose jobs,” says William Even, a professor at the Farmer School of Business at Miami University in Oxford, Ohio.
“The evidence indicates that there will be some decline in employment,” says David Altig, a vice president in the research department at the Federal Reserve Bank in Cleveland. “What is potentially a larger social cost is not getting people into jobs when they’re young, not establishing good work habits.” Minimum-wage jobs and unemployment are disproportionately common among the youngest American workers.
“The increase is huge in historic proportions,” Even says. “So we may see much larger effects on employment than in the past.”
