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Minimum wage hike: More money or fewer jobs?


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On Friday, the federal minimum wage rises for the third year in a row, sparking the perennial argument among economists: Will it help workers at the bottom of the ladder, or will it kill their jobs?


The U.S. minimum wage goes to $7.25 an hour, from $6.55, according to the U.S. Department of Labor. Most states have their own minimum wage, and employers are required to pay whichever is higher. That means minimum wage workers will get a raise in 29 states. In the remaining 21 states and Washington, D.C., they'll see no change.


In some states, the increase will be more modest. In New York, the state minimum wage is $7.15 an hour, so workers there will be paid an extra dime an hour, which means another $4 for a 40-hour week. But in states like Georgia, Virginia and Texas, workers are paid the current federal minimum of $6.55, so they'll get the largest raise of 70 cents, which translates into a $28 bump for a full-time week, or more than $1,400 a year.

Injecting money into the economy?


Kai Filion, an economist with the Economic Policy Institute in Washington, estimated that more than 2.8 million workers will have their wages lifted to $7.25 an hour on Friday. More than 1.6 million workers will also be indirectly affected, according to Filion, meaning their above-minimum wages will increase as the rising tide lifts all boats.


That adds up to nearly 4.5 million workers who would get a raise. The impact varies widely from state to state, depending on state minimum wages and population. In New York, with its $7.10-an-hour state minimum, 63,000 workers would be directly impacted, according to the EPI, compared with 632,000 workers in Texas.

0:00 /0:50Minimum wage hike kicks in


"Because it's not a big increase, any impact will be modest, but it will be good," said Heidi Shierholz, a minimum wage expert with the EPI. "You're seeing people say this is a wrong time to do this, but I think that is entirely wrong-headed. They could not have planned this for a better time."


Based on Filion's estimates, the wage increase will inject $5.5 billion worth of extra spending into the economy over the next year.

"It gets additional money to low-wage workers," said Shierholz. "These are workers who are mostly struggling to get by and will spend that extra cash. This is actually stimulus."

Or fewer jobs for low-wage workers?


Back in 2007, before the current recession began, Congress passed a bill to increase the minimum wage, which was then $5.15 an hour, three times over three years.


Some economists believe that the Friday increase couldn't be happening at a worse time. The U.S. economy lost nearly 3.4 million jobs in the first half of 2009, which is more than the 3.1 million lost in all of 2008.


Suzanne Clain, professor and living wage expert at the Villanova School of Business in Pennsylvania, said that increasing the minimum wage would create additional financial hardships for employers, driving the nationwide unemployment rate above its current 9.5%.


"My feeling is that increasing the minimum wage is going to put additional strain on the economy," she said. "Additional jobs will be lost as a result. It puts stress on employers who are currently having very small profit margins."


Clain conducted an analysis showing that the 13 states with the highest minimum wage -- exceeding the upcoming federal minimum of $7.25 an hour -- experienced higher unemployment levels than the other 37 states. She said the unemployment rates were higher by an average of between 1.75% and 2% in those 13 states during the three-month period ending in May.


"Raising minimum wage rates will generally discourage businesses from employing people," Clain said. "We're already suffering from a downturn phase."

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It won't kill the jobs...it just takes money away from people making $3 or $4 above that.


Rather than give raises to people who have been around a while, they have to give it to the entry level people or the bottom of the barrel worker.

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Rather than give raises to people who have been around a while, they have to give it to the entry level people or the bottom of the barrel worker.


Well if those who have been around do not get a raise then they might tend to look outside for other jobs that pays them more and losing the experienced ones could add to a company's instability

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Will this make them work harder?


oh Boy! McDonalds employees will make that extra effort now. :)


Since labor is calculated into the cost of what you sell then

there is nothing more to do than raise prices. $$$


or lay people off.

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FWIW, I work part-time at The Comcast Music Theater and make minimum wage (+ tips, of course). I actually work for a 'hospitality provider' that holds the contract for this location.


Minimum wage in CT increased to $8.00/hr, up 0.35 from last year.


Although, I cannot pin this on the increase, it is true that the company I work for renegotiated to that the number of 'servers' can be reduced. Last year then had to employ 1 server for every 100 tickets sold. This year, it is 1 server for every 150 tickets sold.


Changes to beer selection and prices, no doubtedly, has a bigger impact on the company's bottom line than does having x less servers.


If I had to guess, they still cut staff even if the minimum wage was not increased.



PS My cousin owns a Diner in West Hartford (big surprise, right?) and he scoffs at the entire minimum wage issue. He said that if he paid minimum wage to his employees, he would have no employees left. He calls it 'feel good' legislation.


As T stated, the increase in wage is built into the price (or size) of the item.

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As the minimum wage increases, so does the option grow for companies to hire students, etc.


who have no disabilities, physical nor learning.


The folks with slight autism, learning or physically disabilities get priced out of opportunities.


With every action, there is a reaction, and that reaction is all too often that which is not intended.

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Will this make them work harder?


oh Boy! McDonalds employees will make that extra effort now. :)


Since labor is calculated into the cost of what you sell then

there is nothing more to do than raise prices. $$$


or lay people off.


It will give them a bigger incentive to put dead flies in the "special sauce".

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"Raising minimum wage rates will generally discourage businesses from employing people," Clain said. "We're already suffering from a downturn phase."




When you raise minimum wage, what that says to a company is "It is now illegal to hire someone for less than this." Companies don't pay people what they are worth. They pay people what the job is worth. So when the government comes in :ph34r: and says, you have to pay them x amount of dollars...well if the job isn't worth that, the job is either

a. phased out = unemployment goes up


b. the company makes less money which in turn means it has less to provide new jobs, expand the economy, etc.


And people wonder why so many jobs are overseas now.


Commence flaming.

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I have had this discussion with people all the time...here is what you have to consider when raising the minimum wage:


1. Where do minimum wage workers work? Wal-mart; Target; K-mart; fast food; movie theaters; etc...

2. When the cost of your payroll goes up, what do companies do...reduce jobs or increase prices. One of the 2.

3. If you reduce jobs...did that help the minimum wage worker?

4. If you increase the prices...go back to #1 and tell me, who goes to those places to shop and spend their money?


So, in effect, you either cost people who can least afford it their jobs....or you increase their cost of living by raising the prices of every place they go.


Further...as was mentioned previously...does anyone NOT making minimum wage get a raise? NO!!!


The next comment was that people would go elsewhere to get jobs....really? That solves something? Because I didn't get the raise...and I also shop at those above mentioned establishments...so in effect, I just got a PAY CUT!!! As did EVERY SINGLE MIDDLE CLASS FAMILY IN AMERICA!!!


Simple economics. If the price of labor goes up...the price of the product will go up...and your dollar no longer goes as far.




Thanks for nothing!

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About the hike, the effect is complicated.


For those employees who are in positions where they simply get a nice raise, it's great.


But, even a landscaper will charge more for jobs done, WPB is exactly right.


Costs go up for producers, costs go up for consumers.


But there is a problem here - I've already addressed simply.


1. A landscaper may very well keep a good employee at the higher minimum wage,


but it can easily negate the possibility of adding another employee to his company.


2. When a sister-in-law asked me to join her company, and be a jobs coach for the handicapped,


I wondered if I was qualified. I did for a good while, and worked with LD young people, one who


had slight autism...


The government subsidy for these jobs for these young people doesn't last all that long.


If you raise the minimum wage too significantly, you price all those young people out of jobs, plain and simply.


One young man, was rough on social skills, confidence, and lacked discretion in making the simplest of judgements.


Like, he would take way too long, packing ice cream into the coolers on the floor, because he would go on and on


adjusting all of the packages of ice cream again and again until they were -perfectly- aligned.


And, when asked to fill the rest of the cooler shelves with chocolate ice cream, he couldn't bring himself to do it,


if the next shelve ALSO didn't have the standard item and price label on every shelf.


And, he'd get distracted, and start relocating other items that were misplaced by customers, realigning


other packages,


He was so much like Dustin Hoffman in the "Rainman". He was well respected for his work ethic, and was liked


by those he worked with. But to keep him after the gov subsidy ran out? Not likely, especially with a significantly higher


minimum wage.


So, I was able to use my instincts, since my boss didn't have any time to train me, (she said she knew I'd be


great at it).


I was able to use simple acronyms for him to remind himself of regularly here and there, to adjust his way of doing


some things. And, I kept trying to make him laugh when talking about some other bugaboos he had, in the hope that some


of the funny things I commented about the job... caught his attention and reminded him to adjust his behavior at that


particular part of the job.


It went very successfully, and they kept him on permanently. He did become so much more a productive employee,


albeit with a somewhat artificial guidelines he caught on to, in place of regular good old common sense.


But, my point is, this kind of young fella doesn't have a chance to keep that job, when you add a significantly


higher minimum wage into the "equation". A young college student, with solid reading skills, his own transportation,


and solid common sense and work ethic.... he would get that job in a New York Second.


What employers will voluntarily go to the trouble of working with the LD, etc. kids at the high wage, when


that higher minimum wage raises the skillset of applicants who are now willing to take those jobs?


It is counter productive to just say it's a great idea so "they" can make more money, with rose colored glasses,


and not consider the flip side effects that are to the negative result that no one intended.


That is also my fear about the health care -change- of systems, and "cap and trade".


We need to get past the superficial INTENDED results of noble and ambitious changes, and see the counter-productive


aspects that also come with those changes.

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