The Federal Minimum Wage Increases This Week - Are You Getting a Pay Raise?

by Xin Lu on 21 July 2008 22 comments

On July 24th, 2008, the Federal minimum wage in The United States will increase from $5.85 per hour to $6.55 per hour in accordance to the 2007 amendment to the Fair Labor Standards Act. This is a 70 cent or approximately 12% increase from last year. Are You getting a pay raise?

I am guessing that for most people the answer is "no" because many businesses already pay more than the Federal Minimum Wage to compete for workers. Additionally, more than 20 states have their own minimum wage laws that give workers higher minimum wages than the Federal rate. For example, in California the minimum wage is already $8.00 per hour this year .

Some have argued that a raise in minimum wage would hurt small businesses, but according to a survey conducted last year , only 3 percent of the small businesses they surveyed paid their workers only the Federal minimum wage, and 6 percent paid only the state minimum wage. The remaining 91%, of small businesses already pay their workers more than the minimum wage so there is not much for them to worry about.

Next year the Federal minimum wage will rise again to $7.25 and stop there until there is more legislation. Some states already index their minimum wage increases to inflation and adjust it annually so the next increase also may not have too much of an impact on businesses that already pay above the minimum wage.

As always, you should know your rights as a worker no matter where you work. If you earn close to the minimum wage, then you should check your state's labor laws for the most updated minimum wage rates. If the law says that you are supposed to receive an increase in pay then you should make sure that you are paid the right amount on the effective date. If applicable, your workplace should also display a new poster informing you of the new minimum wage rates.

Are you getting a pay raise due to this law?  Will it help you significantly in this economically challenging year? 

 

 

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Guest's picture
Sam

It does hurt small businesses actually because it removes the flexibility of business owners to decide how much to pay their own employees. As a result, it may be difficult for small businesses operating at the margins to find ways to cut costs while continuing to offer a competitive service and attractive employee benefits.

But the more pressing issue with this raise is, does it really benefit the working class? Economic research shows that mandatory minimum wage increases offer little help to the working poor. According to analysis of 2003 Current Population Survey,over 70 percent of workers living in poor families - the "working class" - earn hourly wages greater than $7.00 an hour.10. If legislators really want to help the poor, the best thing they can do is abolish, not increase, the minimum wage. Policies that increase competition and choice in public education, reduce marginal tax rates on capital and labor, and protect private property rights would be positive steps toward increasing economic freedom, workers' dignity, and prosperity.

Sam
Fix My Personal Finance
http://fixmypersonalfinance.com/

Guest's picture
John Krumm

The minimum wage affects all workers, not just those at the bottom. It establishes the floor from which all pay rates are judged. When the minimum wage goes up, eventually other wages do too. Businesses have opposed this because it cuts into profits. Some costs are passed on to consumers, but some are covered with reduced profits, so the middle class gets stronger despite inflation. Right now we have inflation cause by rising energy costs, not rising wages, so everyone gets weaker except oil companies.

The logic behind not having a minimum wage might be good for some businesses but horrible for people. Slavery was very good for slave owners, but horrible for slaves, and it didn't do much for the working class that competed with slaves. The same thing happens with no minimum wage. Do you really want a race to the bottom? Think of a decent minimum wage as a minimum morality, with economic benefits for society as a whole.

Guest's picture

Abolishing the minimum wage would only further exacerbate the gulf between the affluent and the impoverished by allowing the more established businesses to operate with an even lower wage floor. If anything, cheapening labor this much would result in an even more pathetic service sector, and an even worse service experience for customers. That is, unless you happen to enjoy the "Stepin Fetchit" experience.

Make no mistake - over a million workers are earning less than the minimum wage. Waiters and waitresses in some places are paid less, and make up the rest in tips. Undocumented workers are sometimes paid less. There are some immigrants who are enslaved by their smugglers. Strippers work for tips. So do some "bar backs" and "waitresses" at night clubs in some cities. You can look this up at the BLS or click my link.

On the flipside, in a state like California, anyone who works is likely to earn more than the minimum wage, because unemployment is relatively lower than elsewhere, and the cost of living is higher. The high cost of living can translate into a higher barrier of entry into the conventional workforce -- so someone who is very desperate may turn to the underground economy first, to get enough cash to afford the expenses of working in a conventional job.

That's where these illegal sub-minimum jobs can appear. For example, suppose you need to make a quick $50 and you have no job. Not only that, but, you're poor and have no interview wardrobe. What to do? Well, you can start by odd-jobbing in any bazaar-like marketplace. Hold a sign, or pass out flyers. The benefit is that the hours are "now" and you don't need nice clothes. These jobs are a mixed blessing - it's good to be able to work, but, you don't want this kind of work to be too common.

If you got rid of the minimum wage, this kind of style of work would spread into the conventional, more above-board workplaces. Is this something we want?

There's a living example of this in Mexico. There, at Wal-Marts, boys will bag your groceries and carry them to the car. These boys are not paid by Wal-Mart - they work for tips - yet, they also work within the store when they're bagging. This is the norm in Mexico, according to Wal-Mart spokespersons.

Is this the situation we want for ourselves?

I would rather that a day's work earn a fair day's wages. Enough to live on, and a little bit extra to save for the future. Minimum wage isn't that, but it's a step in the right direction.

Guest's picture

In Australia the minimum wage for a worker over the age of 21 is something like $15-$18. Only people who are 16 get paid $8 an hour. But then I think the cost of living in Australia is higher.

However, if you calculate how much time I spend working on my entrepreneur blog, and how much I get paid for it. Then I am earning way way way below the minimum wage. But I am hoping this will change shortly.

Guest's picture

Some have argued that a raise in minimum wage would hurt small businesses . . . 91%, of small businesses already pay their workers more than the minimum wage so there is not much for them to worry about.

I don't think I could have refuted this better than Sam did, so I'll just second his opening paragraph. :)

Yes, I realize that if we're talking about people who's wages are affected by a minimum wage increase, we're often talking about the "working poor" and we should be sympathetic to people who only earn that much. But, perhaps it's these very people who need some flexibility in the work place to get ahead. Consider a "receptionist" who settles for minimum wage but who learns to process bills and payments for a small company that needs her to do that as part of her "receptionist" duties. Perhaps the added skills and experience (which can be documented on a resume and backed up with a reference, no less) leads to a better position a couple of years later.

And yes again, if we're talking about a business that is going to be affected by raising wages less than a dollar, then perhaps this isn't a very stable business to begin with, and one could question whether it needs to exist. Welcome to the world of small business entrepreneurship! If an entrepreneur is willing to just get by financially for the privilege of setting his own hours, not working for someone else and/or doing what s/he loves, all the while providing local products and services and *creating jobs* for those who obviously wouldn't otherwise be earning six figures elsewhere, then more power to the business owner!

I'm all for people earning a fair wage for a good day's work. We have to remember, though, that small businesses have their own unique set of issues. We often assume that those with little experience or skills end up working in large, corporate-backed environments; we forget that small local businesses that need "another body" to relieve a stressed owner-operator often "take chances" on those less skilled but whom they can afford. The minimum wage rate definitely affects these operations.

While I'm not necessarily saying "abolish minimum wage" I do think that the issue needs creativity and flexibility, not one-size-fits-all legislation.

Guest's picture
Wilson

"In Australia the minimum wage for a worker over the age of 21 is something like $15-$18."

It's sad how far the US has fallen behind.

Guest's picture

The minimum wage does very little for the poor. What it does do is raise the cost of products for everyone including the poor. Since this is the "only" significant legislature the current congress has passed, maybe we should say thanks.

Guest's picture
Spencer

Here's why I don't like the minimum wage getting raised.

Let's say you work at a minimum wage job, you take your job very seriously and work hard. You work there a year and get a 70 cent raise so you make $6.55 an hour. Thursday rolls around and now the zit faced kid who just got hired makes the same amount as you and you're back to making minimum wage.

Just raising the minimum wage is unfair for people who work hard and try to move up in a company. It either shouldn't go up at all or it should go up for all people making under a certain income (which will never happen).

Guest's picture
Kelja

The minimum wage laws are 'feel-good' populists' ideas which don't help anyone. If you are working for minimum wage right now and don't want to, don't. Even the illegals standing on the corner 7 to 8 dollars an hour and that's with a lunch. I know that for a fact.

It's another case of 'the government knows more than everyone else'. Yes, the government certainly has the smarts to figure out what a minimum wage is. If you believe that, I'll sell you a $600 hammer!

Minimum wages ties the hands of entrepreneurs. What typically happens is they end up hiring less people, or, better still, hiring under the table. Artificially propping up prices by government edict also causes prices of good to rise. Inflation.

Please repeat 3 times a day - government dumb, government dumb, government dumb.

I find it fascinating that the majority of people are willing to abdicate their liberty to a faceless government. In essence, have someone else relieve them of responsibility.

Xin Lu's picture
Xin Lu

Wow, I didn't know the minimum wage in Australia is so high.  Anyway, the cost of living here is not low.  In San Mateo county you need to make at least $17 an hour to afford to rent an average place by yourself.  I haven't met anyone that actually is paid below the state minimum wage, but I know some people that are close to it.  For example, my hubby's ex-roomie was paid $10 an hour at Pete's Coffee.  My hubby let him pay less than 1/3 of the rent so it was ok.  I think it is pretty hard to save money in that situation, though. 

Guest's picture
Rachel D

No big raise here. I am still waiting for the government to decide they want to pay stay at home moms. lol

Guest's picture
PJ

People have to understand that minimum wage laws HURT the poor. They help the trained/experienced blue collar (read: the average union member), at the detriment of their untrained/inexperienced peers.

To see this, let's say you are an entrepreneur and you have a boring, generic job available that adds little value; e.g. cleaning. Thz market rate is 5 dollar per hour, but the government says 8 dollar is the minimum wage. What are you going to do?

You are NOT going to give the person you employ at 5 dollar a raise to 8 dollar. Why?
1. At 8 dollars, cleaning may become too expensive. You end up with dirty restaurants or with overinvestment in labor replacing technology.
2. If you can afford cleaning at 8 dollars and are forced to pay this much, you will hire the best possible employee for that amount of money. At 8 dollar, you can afford someone with skills, prior experience, better attitude, ...

So, minimum wage results in:
1. Unemployment among the unskilled, inexperienced and alien workers. These people could have found a job if the market was allowed to employ them, but they are not (because of a 'social' measure!).
2. Wages for experienced and skilled workers increase, as supply is artificially limited (no more unskilled can become skilled) and demand increases (employers are forced to hire on your pay/skill level).
3. The unskilled, inexperienced, immigrants lose hope and end up in the black markets where they are paid their market rate; drugs, crime, cleaning without the employer protection, ...
4. The unintented consequence of point 3 is that socialists will ask for more socialists to protect the poor from capitalism, while it is the lack of market access that kept these people poor. These politicians get elected on things like 'the poor keep getting poorer'.
5. Overinvestment in technology, an industry that generally employs highly educated people.

So, if you want to help a bunch of union militants and technology geeks, raise the minimum tax! If you want to help the poor, eliminate all taxes and let the market ride. It's the same market that makes that poor people in the Western world* now live longer and with much more comfort than Rockefeller!

* Why only in the western world you ask me? Failure of capitalism? Not really, as long as socialists keep subsidizing western farmers, the agricultural sector will never develop fully in the third world countries. And this is the primary sector as we all know. Just look at how Brazil begs the USA and the EU to open up agricultural trade at the Doha Round. The world needs more trade, not less!

Guest's picture
John31

First, I agree that the minimum was is destructive to the young, the uneducated (high school drop-outs, etc.), the inexperienced, the immigrants. Ask yourself if you are inexperienced - would you rather get an experience or a high paying job? You get experience and then climb up the paying ladder. For example, the teenage unemployment is quite high (in 20% or more). These teenagers would most likely get a job if the cost to employ them was not set by the socialists/politicians artificially high.

Second, if you care about the "poor," why don't you set the minimum wage at $50/hour? What the heck, make it $100/hour. Imagine how you can raise the standard of living!?!? Isn't it the "compassionate" thing to do? Hehe... not exactly, because many jobs at $100/hour will be instantly eliminated, thus rendering those intended "victims" unemployed.

Third, the unions are in favor of the minimum wage, because at the bargaining table they say, "hey, look at those stupid, ignorant, unskilled bums who are getting $8/hour. You can't give us $8/hour, we deserve $14/hour as a starting salary." The cost is passed to the consumers and we pay for it. No wonder, many unionized manufacturing jobs are being lost, because of the artificially set prices (for labor) by all-knowing politicians.

Lastly, the free market, albeit not perfect, is so much better than the centralized, planned, socialist economy. Sadly, there are more and more sectors in the economy of the USA that are turning socialist and/or semi-socialist.

P.S. Who is in favor of raising the minimum wage to $23.75/hour? If you oppose it, you are "mean, cruel, uncaring beast who has no heart."

Guest's picture
Kelja

To all those who believe in a government set minimum wage, it makes no sense. As others have pointed out, if helping out people on the lowest rung of the economic ladder, why stop at $8?

Make it $15 - $25 - heck - $75 or $100 per hour. Why not?

Oh, I forgot, the incredibly 'smart' bureaucrats in government know so much more than the market.

Right?

Guest's picture
John Krumm

The Economic Policy Institute has a great collection of articles and charts and statistics that show just how important a minimum wage is in this country, and why it needs to be higher. Some people have always argued that the minimum wage will hurt low income workers by erasing jobs, but it has never happened. It transfers wealth to the lower section of our economy, which can lead to overall job growth. Wall Street folks may not like it, but Wall Street likes plenty of unemployment too, to keep labor cheap and profits high.

http://www.epi.org/content.cfm/issueguides_minwage

Guest's picture
Anonymous Coward

It's not an aplpes to apples comparison to say Australian minimum wage is 14.60 an hour. There is the excange rate (ok, not much, but still 1 USD = 1.03 AUD), but more than that it is a comparatively complex scheme. It isn't just a blanket statement that all workers get a dollar value.

In fact, the minimum wage in Australia has fallen over the last few years, and even though it went up in 2008, most workers are still seeing a decrease in their wages.

From an article published in March 2008 by the Australian Council of Trade Unions:

"Sixty two per cent of minimum wage workers have suffered a decrease in their real wages as a result of the two Minimum Wage determinations by the AFPC."
"The last AFPC determination increased weekly wages in real terms by 6 cents for 4 per cent of minimum wage workers and reduced the wage of 96 per cent of minimum wage earners between 28 cents and $15.67 per week."

Australia is having its share of problems, but they are at least taking a different approach.

Guest's picture
observer

Here's an idea that helps employers and workers:

Instead of raising the minimum wage, Congress could set a sort of "target" wage with a partial subsidy (refundable tax credit), and repeal the minimum wage. Let's say this target wage starts at $7 per hour.

Employees would be free to pay any wage - since the minimum wage would be repealed -and the employee could file for a refundable tax credit equal to one-half (target wage ($7)- his wage (say $5) times the number of hours he worked.

So if someone works full time (2000 hours) at $5/hr, he could get a subsidy of ($7 -$5)/2 x 2000 = $2/2 x 2000 = $2000. If he worked only 1000 hours, he would get only $1000. (Perversely, today's minimum wage worker maximizes hie Earned Income Tax Credit by working only half-time, and his tax credit decreases as he works more hours!)

This imposes zero cost on employers, increases employer options, and incentivizes workers (who always come out ahead from working more hours and/or earning a higher wage).

Xin Lu's picture
Xin Lu

erm.. doesn't the tax subsidy come from tax dollars of other workers?  I generally believe that the tax code need not be complicated further. 

Guest's picture
wildgift

@PJ & others

The MW isn't as strong as it used to be. There are exemptions from the law, for young people, for waitrons, and for some jobs where people work only for tips. There are also a lot of informal jobs out there, too.

As the MW has lagged, since the 80s, salaries for highly skilled workers has increased.

Back when the MW was higher, the higher salaries were relatively lower. What this really meant was that someone making MW could afford to purchase the services of someone paid fairly well. Someone making twice the MW could afford to go to a doctor and pay cash for services. Could someone making $US12 an hour today get seen by a doctor, without insurance, and pay cash? It's not that easy anymore.

Today, some of the unskilled end up in criminal markets as the lowest paid workers. Then they end up in prison, where they can work for the prison for 30 cents an hour. They compete with all low-wage workers and some high-wage workers.

The immigrants end up in sub-MW underground jobs, too, but they make out better. But, they still compete with above-ground jobs and cause wages to fall.

A rise in the MW will cause investments in technology, but investment in technology is good. It creates not only the jobs for engineers, but many more jobs for technicians to repair the technology, and it also helps increase productivity overall, which is good for the economy.

Raising the MW does contribute to higher costs and inflation. It increases prices for things made with minimum-wage labor, like hamburgers and janitorial service. It doesn't really raise prices for more expensive things that are less affected by the MW. For example, a 50 cent raise in wages is $4 a day, or $800 a year. That is enough to purchase a computer -- and the computer prices aren't going to rise by $800 because of a rise in the MW. That computer purchase would create jobs for people who make a little more than MW and sell computers online.

Of course, the rise in MW will affect the cost of food - so food will rise - but food is not 100% of one's budget. It's more like 20% to 30% if you're poor (and closer to 10% if you're middle class). So you're still keeping the bulk of your raise, and are still able to afford a capital good that can help you improve your skills.

The rise in prices doesn't affect everyone equally. In fact, it does hurt the poor more. But that pain is coupled with a raise that more than mitigates the effect.

The pain the wealthy feel at the checkout line is miniscule - they don't care if the hamburger is $2 or $2.25. The wealthy people feeling the pain are those who employ MW labor - if they employ 20 people at once, and they each get a $4 daily raise, that's $80 less the owner gets to take home each day. That's more than $1,600 a year. The way they see it, a rise in the minimum wage is less money in their pocket to support their lifestyle.

Personally, I'm a big fan of union militant computer geeks, and I'll help them any way I can. Look up Michael Hauben, a union militant computer geek. As a young man, he fought for the right for Ford factory workers to fund their own computer skills training center, so they could prepare themselves for the technology revolution that PCs were ushering in. That union program got shut down by Ford. Now, where are those Ford workers? They're fearing for their pensions as their old industry declines.

Guest's picture
Jackstarr

No one in these posts has yet considered this: if the minimum wage were abolished, what effect would it have on the wage groups who are making slightly more than minimum? Can you seriously believe that the American business community would balk at dropping wages for hourly workers accross the board once the floor is cut away from the current wage structure? After all, if a employer can find some schmucks to take less money then his current staff for the same jobs, the lack of a basement level wage would put huge pressure on him to cut pay scales again and again, knowing his competition will likely be ahead of him. In the 21st century, with the economy already reeling from a lack of basic stability, this is no time to start experimenting with a "race-to-the bottom" economic theory........

Guest's picture
Guest

Did the wage increase help? The government gets more tax money..the exemptions took more..it may have paid more on a debt for some.. Explain something to me...how is it that America ..the land of freedom, the right to breathe live and work is so freely able to LABEL people? The working poor...hmmm...blue collar...hmmmm managers, officers, government workers ..you have the general idea. All this talk about how it hurts others while others prosper..hmmmmmmm now what would you think if EVERYONE IN AMERICA made the exact same amount? You went to college to broaden what you could learn..(a choice either made by you or by money in the family tree currently..but a choice for every American if the wage were the same... (I am a college graduate..with three majors so don't think you are talking to the working poor) Well, I have a far different sort of opinion: everyone in America work different jobs because each of those specific deeds need done in some form or another. It doesnt make what the President in the United States does any diffrent than the person that serves the food..cleans the home..washes out a toilet does..they are ALL necessary things to be done. I have done jobs from food service to executive jobs..one pays more than the other yet they all do the same thing. Put food on the table, clothe your bodies, make a living of a sort for all of America.Provide a source of happiness. The higher the job..the more I see people label others and look down their noses. Even if they once upon a time did that same job. Realistically thinking why are YOU better than the person who feeds you in a restaurant? Why are they being judge as if they do their services well..and you decide whether you tip or not? Its not mandatory..YET. WHY are you labeling people????? Why should that small business suffer...and someone who created an idea make more? If all interprises paid the same wage to everyone..perhaps they would work harder to provide us all with quality merchandise instead of merchandise that falls apart in a months time. How well I remember the times when a person took pride in what they do. Now adays it is all about greed instead of the appreciation of living and in its beauty. Sit back, reminisce and really think about it. It sure would be less stress on America if we didnt constantly have to worry where the next penny drops. You could still live the same quality of life you live; it would just take more time to save your pennies to get to that quality of living. I sure hope its not you that tomorrow looks down upon. I have been there.

Guest's picture
Guest

they could effectively raise the minimum wage to a wage that a person working a 40 hour job can survive and bank money like others do only if they reduce the amount of pay that high paid jobs pay ....no one should make more than 50 bucks an hour and all jobs should be hourly paid. do away with sallaried jobs and pay everyone a decent wage . by placing a maximum wage and PROFIT CAPS they could effectively increase minimum wage. this would do away with people who are working 40 hour week jobs being placed in the poverty level catagory. They need to reduce the wage of the skilled worker and place an enforce caps on the amount of profit any one can make on any producr good or service! this would work. you would have regular people and rich people no one would be poor and no one would be allowed to be filthy rich either!