U.S. minimum wage jumps 11%, but will it help or hurt?

The federal minimum wage gets a boost today, and that has reignited the old debate: Is it ultimately good or bad for the economy?

The question is more pointed now, given the deep recession and the struggles of many small business owners just to stay afloat.

The new minimum is $7.25 an hour, a jump of 70 cents, or 11%, from the old rate of $6.55 in effect since this same date a year ago.

More than a dozen states, including California, have higher minimums that supersede the federal rate. California’s minimum has been $8 an hour since Jan. 1, 2008. Washington state has the highest rate in the Union, at $8.55. (Some cities have their own "living wage" ordinances, as well.)

Historically, many small businesses have objected to mandated minimum wages, saying they can’t afford what the government dictates and that increases could mean lost jobs or reduced hours -- negating, at least in part, the economic benefit from putting a little more spending power in the wallets of low-wage workers.

The vast majority of workers make more than the minimum wage, of course. But in parts of the country where the new federal rate kicks in today, some business owners say the extra labor costs will have consequences.

From the Associated Press:

At Bench Warmers Bar and Grill in the southeast Kansas farming town of Chanute, owner Cathy Matney has decided to let some of her dishwashers go rather than pay all 22 of her employees more.

"It's bad timing," said Matney, whose waitresses and cooks will have to pitch in with scrubbing pots and pans. "With the economy like this, there's a lot of people who are out of work and this is only going to add to it."

Ryan Arfmann, who owns a Jamba Juice shop in Idaho Falls, Idaho, will be cutting hours to his staff, which is made up largely of college students, high schoolers and homemakers who want to make a few bucks.

"Am I going to fire anybody, no," Arfmann said. "But kids understand there's going to be hours cut."

Arfmann said he wishes the increase was spread out over a few more years, to make it easier for him to absorb the costs. He also is concerned that he'll end up having to give everybody raises just to maintain pay differentials between employees.

Churlish as it may seem to suggest that the minimum wage is misguided economic policy, Bloomberg News columnist Caroline Baum asserts that the timing of this increase could be particularly hurtful to demographic groups already facing sky-high unemployment rates -- including teenagers and minorities.

-- Tom Petruno

Comments

[EPI]

Increasing the minimum wage will only destroy jobs. Teenagers will be disproportionately hurt by the minimum wage hike. A 2006 University of Georgia study found that for every 10 percent increase in the minimum wage, teen employment would decline by 4.6 to 9.0 percent. This proved to be true when last summer’s 12 percent hike in the minimum wage corresponded with a five percent teen unemployment spike. For more information, check out www.minimumwage.com or www.teenunemployment.com

[eh]

EPI i don't give a rat's ass about how this effects teenagers trying to earn a little bit of pocket money when I AM STRUGGLING TO SURVIVE.

[Tyler]

If you tie minimum wage to cost of living increases like social security does for seniors, then there would be no drastic increase in cost for the employer. However, business dislikes that idea even more than the idea of inadequate periodic increases. There is no winning for main street on this issue. Fight for stronger unions. They may be inefficient at times, but they get the job done when it comes to higher living wage. Right to work states are the problem not the solution. Furthermore, the tip credit enjoyed by employers in many states is a joke. Why should an employer have the right to pay an employee less for the same work for any reason? That money, the tip, is not coming out of the employer's pocket at any point, nor is the employee allowed to forgo extra company duties to pursue additional tips. Therefore, the employer should have to pay the full minimum wage.