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

July 24, 2009 |  8:30 am

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.)

Fi-minimum-wage25-2 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

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