Minimum Wage Increase

Beginning July 24, 2009, the federal minimum wage is set to increase by $0.70 to $7.25 per hour. Although this may seem as a positive for the nation, it could actually turn out to prolong the recession, say many economists.

The rate increase could potentially force employers to lay off additional workers in order to cut or maintain slim operating margins. When the economy was expanding, wage hikes were seen to help the worker. Now, with the state of the economy in peril, it appears that employers will now need to rethink their financial situation.

Those supporting the rate increase are vehement that the wage bump will help keep those making the minimum afloat during these trying times. Advocates are also calling for another increase and say that higher wages will lead to an increase in consumer spending and strengthen the economy in the end.

The new rate is the result of the federal Fair Minimum Wage Act that was signed into law two years ago. The new law requires employers to enlarge the minimum wage by a total of $2.10 over the next three years. Although lawmakers did not foresee the country being grappled by a recession, economists are now debating the overall effects from the rate increase.

A proponent for the wage increase is Eileen Appelbaum, director of the Center for Women and Work at Rutgers University's School of Management and Labor Relations. Appelbaum believes that the increase is a positive thing for the country, no matter how bad the timing may be.

She states, "The minimum wage has always been and still is today a working woman's issue. Two-thirds of minimum wage workers today are women. Why is it that we devalue the work women do? Why do we assume taking care of old people, working in hospitals, being a nursing aide, a home health aide, a childcare worker, that the skills involved in that are things women are just born knowing? So why would we have to pay for them?"

Counteracting the beliefs of those in favor of the new law is Richard Burkhauser, a Cornell University economist and an experienced voice of the never-ending minimum wage debate.

Burkhauser comments that, "It's hard to tell a story that something that everyone thinks helps people doesn't. There are more effective ways, such as the Earned Income Tax Credit, to help the working poor." He goes on to add, "This is absolutely the worst time to raise the minimum wage."

In Michigan, the Democratic Party is planning to ask the voters of the state the raise the minimum wage to a national high of $10 an hour in 2010, as well as increasing unemployment benefits and require all employers to provide health coverage to all of their workers.

Responding to the implied notion, the Michigan Chamber of Commerce stated that the proposed rate increase would increase costs for businesses and would force them to cut jobs, especially the small and medium-size companies that are already working within a tight profit margin.

Elsewhere throughout the nation, the Texas Workforce Commission (TWC), which administers the Texas Payday Law, helps employers, workers and communities within the state prosper economically. The TWC conducts more than 15,000 wage claim investigations annually.

"Although most Texas workers receive wages greater than the minimum wage from their employers, this increase is an opportunity for those at the lowest wage levels to receive additional income,� stated Tom Pauken, TWC Chairman.

With more than 12 million people employed in Texas, more than 262,000 workers in the state earned the minimum wage or less in 2008, according the U.S. Bureau of Labor Statistics.

"It is important for Texas workers to be fairly compensated for the work they do. This increase in wages is a well-deserved step up for many hard-working Texans," says TWC Commissioner Representing Labor Ronny Congleton.

With the unemployment rate sitting at a quarter-century high, the debate on whether or not the wage increases will be the straw that broke the camel's back remains in question. However, in a May report from the Economic Policy Institute, analysts estimated the July 24 rate increase could generate $5.5B in consumer income over the next year.