Minimum wage workers get a raise

Allison Linn Senior writer • Profile • E-mail

The nation’s lowest-paid workers are getting a raise.

The federal minimum wage increase that went into effect Friday raises the lowest allowable wage for hourly workers from $6.55 to $7.25 an hour. It's the final stage of a three-year plan to increase the minimum wage.

Economists say the nearly 11 percent raise will provide a substantial boost in spending power for some workers but also could hurt some small businesses and job seekers because it will make the cost of hiring and retaining workers more expensive. Overall, however, many expect the economic effect to be minimal, in part because so few employers actually pay workers that low rate.

“At the aggregate level of the economy, it’s not something that would have a huge impact,” said Nigel Gault, chief U.S. economist with IHS Global Insight.

The effect is lessened in part because 21 states already require employers to pay wages at or above the new federal rate, including large states such as California. In addition, employers in the other states have known for several years that this latest boost was coming, and therefore have had time to plan for it.

“A lot of states moved a long time before the federal government moved on minimum wages,” Gault said. “The federal government is now catching up.”

Also, most workers make substantially more than the new minimum wage. The average hourly wage for U.S. workers is $18.52 an hour, according to seasonally adjusted data from the Bureau of Labor Statistics.

Still, there are pockets of the economy where the wage hike could have a significant impact. David Wyss, chief economist with Standard & Poor’s, said those include rural areas or states where wages tend to be lower.

Jon Sweeney / Special to msnbc.com Save-A-Lot grocery store employee Royce Cooley, 17, works the register in the Batesville, Ind., store on July 19. Cooley has been working at the store for 13 months.

Tough times for teen workers
In addition, Wyss said, it also could be another blow to the already tough job market for teens and young adults, who have been among the hardest-hit during the recession. While the overall unemployment rate was at 9.5 percent as of June, it stood at 24 percent for 16- to 19-year-olds and at 15.2 percent for 20- to 24-year-olds.

Phyllis Knueven and her husband have long employed teenage workers at the Save-A-Lot grocery store franchise they own in Batesville, Ind., and currently have seven teenagers on their staff of 25.

But once the minimum wage hike goes into effect, Knueven said she doesn’t think it will make sense to hire more teenage workers at the $7.25 rate when, for as little as $8 an hour, she can hire an adult worker with more experience and flexibility. A teenager, on the other hand, can take longer to train and will be restricted in doing things like selling alcohol or working certain hours.

She said it’s even more difficult to justify hiring teenagers at the new, higher rate during a time when sales are down 20 percent from a year earlier because of the recession. The drop in business has meant that the company has been forced to lay people off for the first time in its history.

To make ends meet without raising labor costs, Knueven said her entire family is working at the store, including her older in-laws who should be retired but instead are working without pay.

“I don’t think, unless you’re in it, you can imagine what a stressful situation it is,” she said.

Map: State-by-state minimum wage

About 3 percent of hourly workers, or 2.2 million people, earn the current minimum wage or less, according to the Bureau of Labor Statistics. Many of those workers are under 25, working part-time and employed by restaurants or bars, according to BLS research. Some of those workers’ base pay is augmented by tips or commissions.

Heidi Shierholz, economist with the Economic Policy Institute, estimates that a larger group of about 4.5 million workers will be affected by the minimum wage increase. That’s because she said it also will impact everyone making somewhere between the current minimum wage and the new one, plus some people who are just above the minimum wage and may see a comparable boost.

Still, Shierholz said there’s no consensus among economists as to whether a minimum wage increase helps or hurts the economy — only that most don’t think it has a significant impact one way or the other.

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