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Experts Disagree: Upcoming Minimum-Wage Increase a Good Move or a Mis-Step in a Shaky Economy?

On July 24, 2009, the federally-mandated minimum wage will increase to $7.25 an hour, up from the $6.55 an hour which took effect this time last year. While an increased minimum wage will clearly benefit the lowest-wage earners, as reported in a recent Wall Street Journal article, experts disagree as to the overall efficacy of the increase during such challenging economic times. Here are just some of the arguments on either side of the debate…

Just Bad Timing
Some economists argue that the increased minimum wage comes at a “bad time” given the weak job market and economic slump. For one, employers don’t necessarily have the ability to assume the increased wages and pass on the cost to consumers by way of higher prices. In addition, an unemployment rate near 9.5% in June translates into lower consumer spending, especially at places that rely heavily on minimum wage-workers (restaurants, car washes, and hotels, for example). Finally, at least one economist has predicted that the increase will lead to the loss of at least 300,000 additional jobs among teenagers and young adults.

The Trickle-Down Effect
In addition to increased wages for the lowest-wage earners, the increased minimum wage means that employers will also have to increase wages for all other workers whose wages are tied to the minimum wage based on length of service and experience. As one employer told The Wall Street Journal, this means that he will have to cut part-time workers and run tighter shifts. Thus, even if workers are making more per hour, at least some workers will be working fewer hours and potentially working harder during those hours (which may or may not be a bad thing).

Long Term Effects
Economists trying to look on the bright side note that there are long-term positive effects of increasing the wages of workers at the bottom of the wage-scale. For example, some economists say that small business may benefit from higher productivity and improved worker retention on account of the higher wages. The Economic Policy Institute estimates that the wage increase will add $5.5 billion to the economy and that this money will be quickly spent by low-wage workers who need to spend to meet daily living costs, thus giving a boost to the local economy.

Clearly the sentiments are mixed on the ultimate effects of increasing the minimum wage during these difficult economic times. If you have any questions about the upcoming minimum wage increase, how it might affect your business, or about other wage and hour issues, please contact the labor and employment attorneys at Bingham McHale. Also, please consider attending our upcoming Breakfast Brief presentation on wage and hour issues.



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