Will the July 25 min. wage hike be good or bad for the recession?

BetterThanEver · Jul 10, 2009

Bush signed a bill in 2007 that increased the minimum wage 70 cents in 2007 and 2008. The last raise will be on July 25th.

Will this be the final good-bye present for our poor economy from George Bush and make the recession deeper?

The July 24, 2008 minimum wage did stimulate the economy. This could force companies to lay off more employees It could force more people to live on food stamps and unemployment rolls and increase more federal spending for such programs. It will increase the cost of groceries by increasing the payroll of farmers and food manufacturers like Tyson, and grocery stores.

On the other hand, this could be another form of tax rebates for the lowest paid employees. The money will be readily spent on basic needs.

http://online.wsj.com/article/SB124684183990798403.html

Minimum-Wage Increase Comes at a Bad Time for Weakened Job Market
By KRIS MAHER

The federal minimum wage goes up this month just as job losses are sending new alarms about the economy, giving traction to perennial fears that higher wages will hurt job creation.

In the past, minimum-wage increases have done little to dent job creation. And pouring more money into people's pockets -- especially low-wage workers who are likely to spend the increase to meet living costs -- would normally boost the economy.

But these aren't normal times.

"It's tough timing," said John Silva, chief economist at Wells Fargo, who expects low-skilled workers and teenagers will be hit hardest. "You're going to have a very negative response. In a recession like this, companies don't have the pricing power to pass on those costs."

History, in this case, isn't a reliable predictor, he says, because the current economic slump is much deeper than during previous times.

The job market remains weak; figures released last week show the June unemployment rate hit 9.5%. Consumer confidence, consistently low, retreated in June, translating into weak traffic at restaurants, car washes and hotels, all places that rely heavily on minimum-wage workers.

The impact of the higher minimum wage will resonate even beyond that group of earners and industries. Economists say there are 2.8 million workers earning between the current federal minimum wage of $6.55 an hour and the new minimum wage of $7.25 an hour, which takes effect on July 24 and has had no signs of delay from legislators. But some estimates figure an additional seven million workers are affected because their wages are tied to the minimum and will go up accordingly.

Ryan Arfmann, who owns a Jamba Juice franchise in Idaho Falls, Idaho, is a case in point. He said he will have to boost pay to all of his 18 workers. The ones making less than $7.25 an hour will be raised to the new rate. But he said he will have to give raises to those currently earning more than $7.25 an hour because they have more experience.

As a result, he plans to cut hours for his part-time workers. "I'll definitely have to run a tighter shift each day and watch numbers like never before," said Mr. Arfmann, who estimates his business is down between 3% and 4% this year.

Still, many economists also see long-term positive effects for the economy from boosting the income of those at the bottom of the economic ladder. They note that many small businesses may benefit through higher productivity in the form of improved worker retention and less churn.

The Economic Policy Institute estimates that the minimum-wage increase will add $5.5 billion to the economy, and that this money is likely to be readily spent by low-wage workers, giving a boost to local economies. Heidi Shierholz, an economist at the liberal think tank in Washington, argues that "it is actually a good time" for an increase in the minimum wage.

The change is welcome to workers such as Walter Jasper, 48 years old, who earns $6.55 an hour at Shur Brite Hi Speed Car Wash in Nashville, Tenn. He has worked there for 14 years off and on. His wife earns $7 an hour working at a discount store and will also get an increase in her paycheck. Mr. Jasper said he and his wife will be late with their rent payment of $359 this month and that the extra income will be used to pay bills.

The minimum-wage increase is the third step of a three-step increase passed by Congress in 2007, meaning businesses had time to prepare. Many states, including California, at $8 an hour, already have minimum wages that surpass the federal level. Last year, as a presidential candidate, President Barack Obama proposed raising the federal minimum wage to $9.50 an hour by 2011.

Before 2007, the federal minimum wage stayed for 10 years at $5.15 an hour, undermining the actual earning power of low-wage workers.

"There is a long-term rationale: to make sure minimum wage at least keeps pace with inflation," said Nariman Behravesh, chief economist with IHS Global Insight in Lexington, Mass. "If you're going to impose a minimum wage, you want to make sure it keeps up, which it hadn't been for a while." The legislation, he said, was an attempt to make sure people weren't getting hurt by inflation and that their wages were keeping pace.

But, he adds, this is probably the worst time to be raising wages. "This is an unfunded mandate that the government is imposing at a time when the economy is struggling," he said.
Click to expand...

Tfj4 · Jul 10, 2009

You don't see Obama freaking out about this

Major · Jul 10, 2009

Eh, I don't think it's an issue at all in this particular recession. The labor market is weak because no one's buying things - not because of excess costs to the businesses. If people start buying, companies will happily hire people at $7.25 instead of $6.50 or whatever. There's just no real upward pressure on wages or other costs of goods sold right now.

If you had the wage hike in a situation of high inflation where businesses' other costs were going up as well, I think it would be a different story. But this is actually not a bad time for the hike. It also gets more money into the pockets of people who will spend, so it serves a second role as well.

Dairy Ashford · Jul 10, 2009

I don't have any problem with a minimum wage hike; of course I've never run a business, so I probably lack that perspective. It's kind of hard for me to imagine someone living on minimum wage without having a roommate and multiple jobs (16 hours/day with weekend work).

juicystream · Jul 10, 2009

pouhe said:

I don't have any problem with a minimum wage hike; of course I've never run a business, so I probably lack that perspective. It's kind of hard for me to imagine someone living on minimum wage without having a roommate and multiple jobs (16 hours/day with weekend work).
Click to expand...

Actually having a roomate with a 40hr job would be enough. Overall this has been a huge hike in a very short period of time. I can't believe dollar menus still exist, though I have noticed a number of my regular fast food choices going up. A 5 pack of nuggets from Wendys has gone from 99cent to $1.39.

Lil Pun · Jul 10, 2009

juicystream said:

Actually having a roomate with a 40hr job would be enough. Overall this has been a huge hike in a very short period of time. I can't believe dollar menus still exist, though I have noticed a number of my regular fast food choices going up. A 5 pack of nuggets from Wendys has gone from 99cent to $1.39.
Click to expand...

I've noticed the same thing. They're not called dollar menus anymore, they're called value menus.

DFWRocket · Jul 10, 2009

I think it is being raised too much. Most minimum wage workers are teenagers or college-age. Less than 1% of workers over the age of 25 make minimum wage.

Mr. Clutch · Jul 10, 2009

Bad if you are looking for minimum wage employment.

justtxyank · Jul 10, 2009

BetterThanEver said:

Will this be the final good-bye present for our poor economy from George Bush and make the recession deeper?
Click to expand...

What? Now I've seen it all. A democrat actually bemoaning an increase in the minimum wage. Wow.

I guess the hatred of George Bush knows no limits!

glynch · Jul 10, 2009

DFWRocket said:

I think it is being raised too much. Most minimum wage workers are teenagers or college-age. Less than 1% of workers over the age of 25 make minimum wage.
Click to expand...

Well I don't think so, though I am sure Fox News wants you to believe so.
It is sad when conservatives have to invent "facts" to fool folks in to supporting their positions. Sadly it is all too effective.
*********
The report, "No Way Out: How Prime-Age Workers Get Trapped in Minimum Wage Jobs," shows that prime-age workers (ages 25 to 54) get stuck in minimum wage jobs, especially during periods of relatively high unemployment and limited wage growth. Most minimum wage workers are between the ages of 25 and 54, and a minimum wage earner provides, on average, 68 percent of their total family income.

http://www.cepr.net/index.php/press...rkers-ages-25-to-54-trapped-in-low-wage-jobs/

ROXRAN · Jul 10, 2009

Wait a sec...LOL...Raising the minimum wage is bad.
signed,

Democrats/Obama supporters

Forums

Will the July 25 min. wage hike be good or bad for the recession?

BetterThanEver Member

Tfj4 Member

Major Member

Dairy Ashford Member

juicystream Member

Lil Pun Member

DFWRocket Member

Mr. Clutch Member

justtxyank Member

glynch Member

ROXRAN Member

Share This Page

About ClutchFans

Rockets Content

Support ClutchFans!