Some hail minimum-wage hike; others worry how it will affect economy

By Carmen Blanco
Catholic News Service, Aug 11, 2009

Workers in 30 states and the District of Columbia have been impacted by the [July] 24 increase in the federal minimum wage from $6.55 to $7.25 per hour, but the question of whether the increase will help or hurt the economy remains to be seen. "Families are relying on low minimum wages more than ever," Paul Sonn, legal co-director of the National Employment Law Project, told Catholic News Service in a phone interview. "There is a widespread misconception that minimum-wage workers are largely comprised of teenagers working for spare change but the demographic of minimum-wage workers is overwhelmingly adults."

U.S. Labor Secretary Hilda Solis said in a statement the wage increase will generate an extra $5.5 billion in consumer spending over the next year.

The federal increase was the last step in a minimum-wage increase phased in over a three-year period. In 2007, the minimum wage was increased to $5.85, and last year it was further increased to $6.55. The states affected either had wages set to or lower than the previous federal level of $6.55. In states such as New York and Pennsylvania, where the minimum wage was $7.15 before the recent wage increase, workers will be slightly affected by the 10-cent change. But for states such as Georgia, Virginia and Texas, where the minimum wage was $6.55, workers will be earning an additional 70 cents per hour, which translates into a gain of $28 per 40-hour workweek.

"This administration is committed to improving the lives of working families across the nation and the increase in the minimum wage is another important step in the right direction," said Solis.

But there is a fear among some economists and business professionals that the minimum-wage increase will not help the economy as much as expected. Employers may have to adjust employment levels, reducing their workforce or cutting back hours to pay the increased wages. Mike Donahue of the National Restaurant Association was not certain the new minimum wage will help businesses, especially restaurants, during the nation's current financial state. "It's difficult to forecast the effect the increase will have given the fragile state of our economy," Donahue told CNS. "But increased labor costs are not going to encourage restauranteurs to expand their workforce." According to the association's analysis of data from the Bureau of Labor Statistics, more than 104,000 jobs were cut in the last six months of 2008 and job losses are expected to continue throughout 2009. "Well over 3 million jobs will likely be shed before the downturn runs its course," the analysis said.

But national business leaders and small-business owners in states affected by the wage increase said it will boost consumer buying power and promote economic recovery. "When we raise the incomes of the lowest paid employees, the money is immediately spent and flows instantly into the economy," said Richard Ketering, president of VHS Cleaning Services in Ashland, Wis.

According to the Economic Policy Institute, nearly 7 percent of Wisconsin workers will receive a wage increase. States unaffected by the federal increase, such as California and Colorado, had state minimum-wage laws set equal to or higher than the new rate of $7.25. In cases where state wages are set above the federal wage, workers receive the higher amount. Workers who rely on receiving tips for their service, such as waiters, waitresses and hotel housekeepers, are excluded from the federal wage increase but benefit because their base pay and tips must add up to the minimum wage or else employers must make up the difference.

Jose Oliva, policy coordinator for Restaurant Opportunities Centers United, was pleased with the increase but said he hoped one day workers who get tips as part of their pay will receive one minimum wage like current minimum-wage workers. He told CNS of a Chicago bartender who relies on his tips and paycheck to support himself and his disabled brother who cannot work.

"He makes between $40 and $80 each night in tips adding up to a little over $300 per week but his actual paycheck, which is the standard $2.13 per hour, amounts to about 25 cents after taxes are taken out," Oliva said. "His story is not unique but is a common scenario for restaurant workers. Their paychecks are basically useless. The customers are the ones subsidizing the workers." He added, "Nearly 15 percent of waiters and waitresses live below the federal poverty level." The minimum wage for employees whose tips are part of their pay has been frozen at the hourly rate of $2.13 since 1991.

Advocates of raising the minimum wage, like Holly Sklar of the Let Justice Roll living-wage campaign, also were pleased with the latest hike but hope to see a more adequate government response to financial problems that minimum-wage workers still face. Sklar is the senior policy adviser for the nonpartisan coalition of more than 100 faith, labor and community organizations committed to raising the minimum wage at the state and federal level to one they say workers can comfortably live on. The group hopes to see the minimum wage raised to $10 per hour by next year.

"Restaurant workers do some of the hardest and most underappreciated jobs in our nation. It's time they were guaranteed fair compensation. While the minimum-wage increase is progress worth celebrating, we can't forget that tipped workers are waiting for additional reforms," Oliva said.