How will the federal minimum wage increase affect you?

by Xin Lu on 8 July 2009 29 comments

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?
 

1
Average: 1 (1 vote)
Your rating: None
ShareThis

comments

29 discussions

Add New Comment

CAPTCHA
This test helps prevent automated spam submissions.
Guest's picture
Tyler

What a terrible time to increase it. This is just another cost that will be forwarded to the consumer, not to mention businesses that pay minimum wage (probably for a good reason, like low profits) will have to cut back on their hiring or even go ahead with layoffs.

Guest's picture

With a minimum wage of $7.25, a full-time employee will be earning $15,080 annually.

That's about what I was making in 1979 at a Wall Street Law firm as a paralegal one year out of Yale. And I was happy to get it.

And there are cries that this new rate is still not a "living wage" -- from the people who have been making sure for the last 30 years that it wouldn't be.

Right now I make over $90,000 per year. Will that be the new minimum wage in 2039? Just might be.

Guest's picture
david

Your 1979 $15,080 would now be $47,000 as there has been 311% inflation since 1979!!!!! Thus comparing your $15,000 from 30 years ago to today makes absolutely no logical sense.

Guest's picture
Diana

That is a coincidence that you mentioned working for a law firm. I am currently working for a law firm myself and making around $25,000.00 a year. That is not minimum wage, but I can say I am happy to get that also.

Furthermore, I have always thought what might be a comfortable amount of money now, might not be in the near future.

Guest's picture
Rachel

This is interesting, because the poverty line is right around $16,000 right now. The new minimum wage will pull many people over it. I wonder if this is an attempt to skew statistics?

Either way, I think that the increase in minimum wage means an increase in everything else. Like groceries and gas. Which means a tighter budget for me.

Xin Lu's picture
Xin Lu

According to this:  http://aspe.hhs.gov/poverty/09poverty.shtml the poverty line is $10k for a single person and $14k for 2 people in the 48 contiguous states and DC.  It's a bit higher in Alaska & Hawaii.  So basically full time minimum wage workers aren't defined as in poverty unless they have a huge household.  There are also tax credits and other aid available. 

Guest's picture
John Schiro

I'm all for the poor,and low scale worker, but this is the wrong time. If your not watching your increase's as of yet, hold on, you will see something happen that never happened in the great Depression.

John

Xin Lu's picture
Xin Lu

Interestingly enough one of the theories as to why the Great Depression was so great is that wages were kept high and that reduced the number of jobs.  I don't think that's happening right now since many companies are cutting wages, but I do believe that minimum wage workers will see less jobs due to this hike. 

Guest's picture
Guest

A bunch of well-off cheapskates commenting here. Sorry giving your local unskilled worker a barely-living wage will make your groceries a little higher! My God.

Guest's picture
Guest

Agreed get off your high horse people

Guest's picture
John Schiro

Yes, Xin , I do agree with you. Now stop and think seriously, about what I say.The difference between now and then is this.
The U.S. required all imigrants to prove they could sustain their own welfare here in the U.S.. Now we don't even require any I.D. to get a job. American Citizens Can't get a minimum wage job, because illegals will work for less than minimum Wage.
The illegals could care less about what they make, because our Government chooses to give illegals their U.S. rights, without being citizens, let alone, breaking the laws we set up for for all imigrants, during the great Depression.

John

Guest's picture
lisa

Hi! I don't know where you can get jobs without I.D. here in US.They have you bring in 2 forms of I.D. for every job hired for.Unless it would be working under the table(people hiring without employers paying S.S. like supposed to).

Guest's picture
Val

You absolutely must present ID establishing your citizenship prior to being hired to work in this country. You are either self-employed, unemployed or have a bad memory. Every job I've ever held has required this type of ID.

Guest's picture

According to the US Bureau of Labor Statistics, there are 2.2 million Americans being paid minimum wage, and 50% of those are under the age of 25 (i.e. teen/college kids). The number of people making minimum wage in the states that don't have higher mandates likely totals around one million, so your "millions" statement is incorrect.

Last year on July 24, federal minimum wage increased from $5.85 to $6.55, an 11% increase, so a 10.7% raise this year is not quite rare.

While a brand-new McDonalds line worker will probably make minimum wage or slightly higher, workers there receive overtime pay and raises just as in other industries.

Increasing the minimum wage decreases the number of jobs/hours available for people with no skills, making it harder for them to gain skills that they can use to earn promotions and better jobs in the future.

Guest's picture
Guest

In response to Marina Martin above, the author did state that some non-minimum wage workers will get raises just because people being paid less than them will get an automatic raise. If you read the WSJ article they actually quote a business owner who says he will have to increase wages for his non-minimum wage workers because of this. So yes, millions will be affected because people who do not earn just the minimum wage will also get pay hikes. Also, the author wrote that a 10.7% pay increase is pretty rare in this economy, and that is true. I don't know ANYONE who is getting a 10.7% pay raise.

Guest's picture
MB

I hear this a lot. When the economy is good, we can't raise the minimum wage because everything's fine and we don't want to mess with it. When the economy is bad, we can't raise minimum wage because the economy might get worse. Some people can never be happy.

The minimum wage of a couple of years ago--$5.15, I think--was brutal. My husband had to work for it for a while. We worked the first three weeks of the month to make rent money, and visited the food bank regularly.

The minimum wage hike is a good thing. Debate about the timing is a red herring.

Guest's picture
lisa

Hi! Actually, it would be great to find a minimum wage job right now. My son , 18 has applied lots of places, all that are taking applications & hasn't had 1 phone call in 6 months.

Guest's picture
Joe

Your post makes no sense.

Do you honestly believe that $15,000 is worth the same now as it did 30 years ago and will be worth the same 30 years from now?

Guest's picture
Jim

Only 3% of workers will be impacted by this many of whom only work part time. Less than 40% of people live in states impacted by the change. Smartmoney said it will mean a $1.6B increase in pay which is a tiny drop in the bucket for our national economy.

At a cost of $1.6B that equates to $5 per person. If you cut the $1.6B off of corporate profits it would be a 0.1% drop.

This isn't the best time for such an increase so I could see delaying it a year or two. But it certainly won't have all that much impact.

Xin Lu's picture
Xin Lu

You have to fill out an I-9 to show your legal work status.  YOu don't have to be a citizen, but you need the right to work.  You could have a green card or work authorization card.  These are legal documents.  Legitimate businesses that actually obey minimum wage laws would obey immigration laws, too. 

Guest's picture
Kathy

Since we are a state funded institution with a very inflexible budget, we will have to cut hours for all minimum wage employees to make up for the increase. All other businesses in our area are either laying off employees or cutting hours.

Guest's picture
Paulie

If you want to think a little more deeply about it, just follow the numbers (and consequences)
Minimum wage goes up, there is much rejoicing until a bunch of employers and small businesses lay folks off in an attempt to control costs. In any business HR accounts for the biggest line item cost. It just jumped by a little more than 10%, so it's time to cut back a bit.
Those at minimum wage will have a bit more money, until the cost of goods and services go up in order to back the increased cost of employing people. This will happen very, very fast and it will happen across the board.
The price of a loaf of bread will go up by about 10%. That leaves the minimum wage earner with exactly the same amount of buying power that he had before the increase, if he got to keep his job. The numbers were just shuffled.
The only realistic way for a minimum wage earner to increase his buying power is by hard work and proving to potential employers that the minimum wage earner is worth more.
What's more, those of us who do not earn minimum wage will be hurt because the inevitable inflation will happen much faster than our payraises, actually lowering our purchasing power.
Minimum wage should be indexed to inflation, that way we won't have a big shock to the system.

Guest's picture
Guest

I don't know about everyone else here, but where I'm from, this minimum wage hike probably won't effect much, and here's why: For the jobs that will be effected by this, like restaurant and grocery store workers, management routinely keeps things to where they're just barely staffed enough to keep up with things anyhow. Around here, they can't let go many more workers in most places without cutting their own throats.

Guest's picture
Guest

I work in a restaurant for barely above minimum wage which means that the new law will mean a small increase in my hourly pay rate. Unfortunately that won't do me or my family any good because my job is already reducing the number of days a week I (and many others like me) can work. I had to practically beg for 3 days of work this week even though I'm available every day. So things are only going to get worse for me and with the inevitable decrease in business that fall will bring, I am very concerned.

Guest's picture
Guest

Many businesses may go through the motions of asking for proof of right to work, however, identity theft by illegal immigrants is an enormous enterprise in this nation. Yes, illegal immigrants mean more works in the pool and thus less jobs. And to say they take jobs Americans won't take is nonsense. Our people have a history of hard work. If there are some areas where "gringo"s won't try for a job, it is usually due to the hostile environment they would be put into. This is especially true for women. And then to consider that the U.S. govt. allows thousands of workers from third world nations to come here legally to supposedly fill jobs that companies can't find qualified Americans to do is ridiculous! "Qualified" often means less benefits or pay. There are millions of workers in this nation who have no right to be here. Let them go back home to Mexico, India, China, Pakistan, or North Africa and work to make their nation better instead of putting more stress on our fragile country.

Guest's picture
Guest

In the 59's, 60's and 70's the minimum wage was raised every few years by 20 - 50 cents/hour. No one noticed or complained. The wage equaled the poverty level for a family of 3, and 1/2 the average hourly wage. The economy was great. Then The Reagan/Bush Administration refused to raise it for 10 years. Inflation rose sky-high during that time. The value of the minimum wage dropped to 80% of the poverty level. That's when we started seeing homeless on the streets. A living wage should provide enough wages to pay for an average efficiency apartment, using 1/3 of those wages for housing. In my neighborhood that would be about $10.00/hour. The best way to stimulate the economy is to provide workers enough wages to buy the products they are manufacturing. Henry Ford knew this. He paid his workers a living wage.

Guest's picture
Guest

Urban workers will see little effect, since even fast-food jobs pay better than minimum in the cities.

In small towns, no competition means low wages, and the majority of jobs in many small towns are minimum or near it, especially in the Southeast. Employers are cutting back hours on all employees to compensate for the wage increase. In better times, I'd excoriate them as cheapskate slaveholders, but in a near-depression economy, it's understandable. The domino effect of late rents or doubling up with families, credit defaults, deferred maintenance on autos and human bodies, and uninsured casualties are inevitable consequences which contribute further to the recessionary spiral.

I'm a live-in personal assistant to a disabled man. To me, the minimum wage increase means unemployment within the year, since my boss has decided that the costs of importing an overseas "mail-order bride" are cheaper than my wages.

Guest's picture
Jessica

Many people who have left posts for this article condemn the minimum wage increase. I wonder if many of those individuals have actually worked a minimum wage job. The first thing I want to challenge is the notion that miniumum wage workers have no skills. There are many industries that pay very low, yet require education and the use of various skills like child care workers. I worked as a preschool teacher aide and had to complete various classes and certifications. When is teaching not a skill? Custodial, restraunt, retail and various labor jobs also require the development and use of many skills whether its multi-tasking, communication skills, use of various technologies and equipment and ect. Really, when it comes to pay, low pay does not equate no skills. I remember approaching my local paper about a position as a reporter and they said they paid between $9 to $11 an hour to start. And that's for a college graduate with experience. I understand many people are concerned that the increase will result in layoffs and loss of hours, but the truth is that many industries do this anyhow on a regular basis. I worked retail when the economy was up. It can be expected that one week you get 40 hours, another week you get 20. And if business suddenly slows down or they can get someone even cheaper to do the job, they can let you go for whatever frivolous reason--and then, deny you of unemployment. The bottom line is that society just doesn't pay enough respect to low-wage workers.

Guest's picture
Ebony

You said wat I wanted to say much better than I could. Some of the post against the increase were ridiculous, especially the one comparing making $15,000 in 1979 to $15,000 today.