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Best or worst time for wage hike?
Minimum wage poster from the U.S. Department of Labor
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TEXT OF STORY
KAI RYSSDAL: The federal minimum wage went up today. It was a 70 cent bump to $7.25 an hour. Workers at the bottom end of the pay scale in 31 states will be getting raises. The other 19 states already had minimums higher than the new federal standard. The increase had been in the works for a while. It's the last of a three-step adjustment that was started years ago. It just happens to be coming in the middle of the worst recession in 75 years.
Marketplace's Jeff Tyler reports.
Jeff Tyler: Is this the best time or the worst time to raise the minimum wage? It depends on who you ask.
Heidi Shierholz is an economist at the Economic Policy Institute in Washington.
Heidi Shierholz: What this will do is get additional wages to low-income families, who will spend it in the economy and stimulate the economy. So this is actually perfect timing for this thing.
She says the wage hike could act as a stimulus package that doesn't require government spending.
Shierholz: We estimate that this increase, though modest, will actually give the economy a $5.5 billion boost.
Business groups are skeptical. Marc Freedman is with the U.S. Chamber of Commerce.
Marc Freedman: I don't think you could find a worse time to do this. Businesses are struggling to stay afloat. And the idea of adding a wage burden to them at this moment could potentially be crushing.
Consider the effects on the owner of a local pizza parlor. That's the example used by Bill Dunkelberg, chief economist at the National Federation of Independent Business. A 70 cent increase in hourly pay for 10 minimum wage employees will cost an extra $14,000 a year.
Bill Dunkelberg: Now that is either going to come out of the profits earned by the owner, which typically isn't real high in the pizza joints. Or it's going to be passed on to customers in the form of higher prices. When pizza prices go up, people buy less and so somebody is going to lose a job.
More layoffs when unemployment is already close to 10 percent could slow a recovery. But studies suggest job losses will be small. Last year, the Journal of Labor Research found that a 10 percent increase in the minimum wage caused small businesses to reduce employment by around 1 percent. This time around, there may be even less damage.
Employers have had three years to plan for this hike. Even workers who already earn more than the minimum wage could see a bump. For example, teachers' aids at one pre-school in Boise, Idaho currently make $8 an hour. To keep their wages on step above minimum, owner Scott McGavin plans to pay them more.
Scott McGavin: We want to make sure our people are paid competitively.
His business is struggling. So it won't be easy.
McGavin: It might be a little bit of a challenge for us, but it's a small challenge relative to somebody who's making $8 an hour.
Finally, it's worth remembering that the first minimum wage took effect during even worse economic conditions: In 1938, during the Great Depression.
I'm Jeff Tyler for Marketplace.
Ryssdal: For a look at the minimum wage in your state, see our state-by-state list at Marketplace.org.
MINIMUM WAGE BY STATE
While the minimum hourly wage is set by the federal government, states can set higher wage requirements. The chart below shows the minimum wage now in effect in each state and the District of Columbia.
| STATE | MINIMUM WAGE |
|---|---|
| Source: U.S. Department of Labor |
Effective July 24, 2009 * = Was $6.55 |
| Alabama | $7.25 * |
| Alaska | $7.25 |
| Arizona | $7.25 |
| Arkansas | $7.25 * |
| California | $8.00 |
| Colorado | $7.28 |
| Connecticut | $7.65 |
| Delaware | $7.25 (was $7.15) |
| District of Columbia | $7.55 |
| Florida | $7.25 (was $7.21) |
| Georgia | $7.25 * |
| Hawaii | $7.25 |
| Idaho | $7.25 * |
| Illinois | $8.00 (was $7.75) |
| Indiana | $7.25 * |
| Iowa | $7.25 |
| Kansas | $7.25 * |
| Kentucky | $7.25 |
| Louisiana | $7.25 * |
| Maine | $7.25 |
| Maryland | $7.25 * |
| Massachusetts | $8.00 |
| Michigan | $7.40 |
| Minnesota | $7.25 * |
| Mississippi | $7.25 * |
| Missouri | $7.25 (was $7.05) |
| Montana | $7.25 (was $6.90 |
| Nebraska | $7.25 * |
| Nevada | $7.25 (was $6.85) |
| New Hampshire | $7.25 |
| New Jersey | $7.25 (was $7.15) |
| New Mexico | $7.50 |
| New York | $7.25 (was $7.15) |
| North Carolina | $7.25 * |
| North Dakota | $7.25 * |
| Ohio | $7.30 * |
| Oklahoma | $7.25 * |
| Oregon | $8.40 |
| Pennsylvania | $7.25 (was $7.15) |
| Puerto Rico | $7.25 * |
| Rhode Island | $7.40 |
| South Carolina | $7.25 * |
| South Dakota | $7.25 * |
| Tennessee | $7.25 * |
| Texas | $7.25 * |
| Utah | $7.25 * |
| Vermont | $8.06 |
| Virginia | $7.25 * |
| Washington | $8.55 |
| West Virginia | $7.25 |
| Wisconsin | $7.25 * |
| Wyoming | $7.25 * |
What value does the gratuitous assertion, "This time around, there may be even less damage" add to this story. There could be more! Now is a time when demand is slack, so it's easier to shed excess labor and figure out how to get by with less labor.
The idea that raising the minimum wage will provide a stimulus to the economy is as dumb as a box of rocks because it is based on the fallacious assumption that the money that will be transferred is currently idle money, which is rarely the case. It is much more likely that that money is, currently, supporting economic activity elsewhere in the economy that will stop when the money is removed, so the net result is a wash. As some economists would put it, in terms of the effect on the system, it is like dipping water from one end of the pool and pouring it in at the other.
By my rough calculations, 24 states (just under half) experienced the full .70 increase in minimum wage. Businesses in those states now have to pay their minimum wage employees 10.7% more each week. Of the other 26 states, only nine of them had a minimum wage lower than 7.25/hr. Navada, one of the nine, had the most extreme increase of 40 cents per hour, while Florida's increase was only 4 cents per hour. On average, these nine states increased their minimum wage by 18 cents or 2.5%.
Anyone who has ever worked for minimum wage can attest to the extreme difficulty of not living paycheck to paycheck. For anyone in this situation, even the slightest increase in pay, if not take away by a resultant change in tax bracket, has an immediate quality of life impact and an immediate impact on the local economy. Even without considering the three year warning businesses in the 33 impacted states have had, it's hard to see their complaints as anything but misanthropic poor mouthing.
I'm no expert like the guest you had on re: the minimum wage hike but I thought I could trust data that was given out on your show. Not so; specifically the accountant/economist/restaurant assoc. rep.? that said a pizzeria would pay $14K more per year with the min. wage hike. I don't know what kind of pizzeria he's talking about but I did a quick check on his #'s. With 10 employees (those would be legally full-time employees, not part-timers at 38+ hrs. per week, un-tipped, non-wait staff) who were only presently getting min. wage each raised by $.70 per hour would produce the $14K yearly increase to the employer example. That is a pizzeria with a large full-time, un-tipped staff, 10 of which are only making min. wage? That's a large "pizzeria" business with a stingy owner. Where might one find such a business in the US. Give me a break.
