How will the federal minimum wage increase affect you?
On July 24th, 2009 the federal minimum wage will increase from $6.55 an hour to $7.25 an hour. This amounts to an increase of 10.7%. How will this change affect you?
This change will raise hourly wages for millions of workers in 29 states that have minimum wages lower than $7.25 an hour. In some cases workers who already make more than the minimum wage will also get a pay bump because their coworkers who are making the current minimum wage are getting a federally mandated raise. However, this does not mean that every worker will end up with more money because businesses may be forced to cut hours to adjust to the change. For example, if a worker's hours are reduced by 15% then a 10.7% wage increase would not cover the shortfall.
Some are arguing that this is probably the worst time to increase the minimum wage since almost all businesses are dealing with decreased revenues in the current recession. Considering that this is not the first minimum wage hike since the beginning of the recession in December 2007 it is possible that this hike will make businesses such as retail stores and restaurants cut down on hiring or simply lay people off.
It is unlikely that businesses will be raising prices for their products in the current economy, but if hours are cut on minimum wage workers to reduce labor costs then consumers may be getting less customer service from certain businesses. This could cause some frustrations in the short term.
On the upside, this change will help families who are paid based on the minimum wage and will not get a reduction in work. A 10.7% pay raise is definitely very rare and valuable in the current recession. Additionally, a good amount of minimum wage earners are teenagers and young adults who will spend the extra money they earn. It is still unclear how much the larger economy will be boosted by this change because the extra pay has to come from somewhere. The extra economic activity generated by those who are getting pay hikes may just be balanced out by the decrease of spending by those who will be losing work.
What do you think? Will this hike in minimum wage affect your pocketbook? Is your company cutting hours or laying people off in response to the change?