HR Management & Compliance

The Minimum Wage Increase: Does It Really Matter?

By BLR Founder and Publisher Bob Brady

Congress looks likely to raise the minimum wage. But BLR’s CEO says it’s likely to have minimal effect.

It looks like Congress is going to increase the minimum wage for the first time since 1997. The House has passed the measure overwhelmingly, and the Senate has agreed in principle. What’s more, the president has said in advance he’ll sign on. There will be some last minute wrangling over accompanying tax breaks for small business, but in the end, as they say in Washington, this is a done deal. 

This is also, as they say, “deja vu all over again.” Way back in 1977, the lead article in the first issue of BLR’s first newsletter was headlined, “Minimum Wage Increased to $2.25.” It went on to report on fears that this increase would cause employment in low-wage industries to plummet. (And, as I type this on my Fujitsu notebook computer, I remember fondly the Hartford, Conn.-made Royal semi-electric typewriter that I used to compose that article!)

That was 30 years ago, but last year in a survey, our readers, told us that minimum wage and overtime issues continue to be one of the major issues you face on a day-to-day basic. (So déjà vu keeps on happening!)

What Will Happen? That Depends on Who You Listen To

What Congress is proposing is pretty basic, and in the opinion of many, long overdue. It’s an increase from the current $5.15 to $5.85/hour, starting 60 days after the bill is signed by the president. The minimum would then rise to $7.25 after an additional year.

How many people is the change likely to affect and will it mean the loss of jobs, as some critics maintain?

The answer depends on who you listen to. In the 29 states that already have minimum wages higher than the federal, the impact will be very minimal. (There may be some workers covered by the federal who aren’t subject to the state but they are the only ones who would be affected.)

The largest impact, according to The New York Times, would be to 13 million workers, mainly in the South and Southwest, who currently receive less than the federal minimum and who could thus expect a raise. Some would lose their jobs—at least in the short-term, although economists believe that the impact will be minimal.

My personal belief is that raising the minimum to these levels will not have a significant impact, either to employment or inflation. There was a time in our recent history when the minimum wage was a greater factor, but that was back when it was, as a matter of “accidental practice,” pegged at 50% of the national production workers’ average pay (now $17/hour). If that were true today, the minimum would be about $9/hour by 2009, which probably would have an impact.

What of the argument that this will just send more jobs overseas? Not to say that loss of jobs is not a problem, but when workers in Vietnam get $50/month, the causes of that phenomenon are much more structural than the modest increases likely to take place as a result of this legislation. The increased cost of healthcare insurance and benefits are having a much greater effect than the minimum wage. What’s more, many of these jobs are service jobs. You can’t wash cars or clean buildings from Vietnam.

The Fair Labor Standards Act (FLSA) does have an impact on employment practices and costs, primarily in overtime regulation, but as of this writing there was no indication of significant change in that part of the law.

BLR federal/state law services (What to do about Personnel Problems [in Your State] and Employee Compensation [in Your State] and websites, (HR.BLR.COM[state] and Compensation.BLR.com [state]) regularly cover every aspect of state and federal enforcement of the FLSA. If you have questions about the changes, I believe there are no better resources available to keep you up to date. (I’ve spent my whole career trying to make them better and better, so I hope they are!) If you’d like more information on any of these products, simply email us at hrdailyadvisor@blr.com and tell us which you’d like to know about, or even try free.

That’s my e-pinion. I’d like to hear yours. Email me at RBrady@blr.com.

4 thoughts on “The Minimum Wage Increase: Does It Really Matter?”

  1. Hello Mr. Brady,

    I work in a community college in the HR department. We are looking at compensation and have adjusted salaries for faculty, staff, adjunct faculty and are now working on part-time staff. We were planning on shifting our beginning wage upward in any case but AZ has passed a bill this past year so the minimum has changed for us. What I do worry about is the impact on people that have support coming from the state or federal government and can make only a certain wage per month or have their support cut. There are those that are developmentally disabled that work in service jobs or other jobs and feel very valued. Because of the higher wage, they must cut back on their hours to stay in the minimum and that means hours of loneliness, idleness, and families can be impacted. The ripple effects are great. I have to wonder if this decision would have been better trusted to employers to be proactive and stay competitive with their wages. Thanks for the opportunity to state my opinion.

    Sincerely,
    Deanna Reeves
    Human Resources
    Yavapai College

  2. If the minimum wage increases to $7.25, it will have an impact on our business. We are non-profit agency and we have some entry level jobs that we pay at less than that now. Doing that will force us to raise the wages for the rest of our employees, which will have a negative impact on our agency. We are totally grant-funded so only have a set amount of funds to run our programs. Any raise in salaries could result in lay-offs, less services we can provide to the clients we serve, which are low-income, elderly and disabled.

    I know we are a small majority but that will not make it any easier for our employees or the clients we serve. Also, among the client we serve, the raise in minimum wage could result in loss of assistance for these people. Many of them are working poor and do not have insurance and barely can make ends meet, and sometimes they don’t even do that. This will have a direct effect on them. Less spending power for them with loss of day care subsidies, loss of Medicaid, etc. because of raise in their income.

    Just thought you needed to hear that side of it.

    Rebecca Hopper
    Director of Human Resources
    Economic Security Corp.
    Joplin, MO

  3. No effect on our mfg company because our entry level per/hr rate is higher than the increase. Consequently, our overtime won’t be changed either.

    However, I imagine that fast food places, parking garages with attendants, etc. etc. will feel the increase in their bottom line. You are correct that a lot of services cannot be moved overseas, but the increase does mean that a. level of service will drop or b. services costs will increase — probably the latter. (Service levels are already low or non-existent in places). Oh well, everyone needs a piece of the pie!!

    Jeane Lair

  4. Mr. Brady,

    With all due respect, maybe the more appropriate question should be – “Increase in minimum wage, what good may currently come from it?”

    The well written article is full of disclaimers as to why it doesn’t hurt to raise the minimum wage, but (wisely) avoids an attempt to prove any positive comes from raising the minimum wage.

    In a nutshell – the market place (which many of us work within), not the government, is the wiser of the two determinants in setting skill approprate pay for the following reasons:

    1. If minimum wage arguments hold true, the economic gap between CEO’s and the entry level employee should be diminishing, not increasing.
    2. Minimum wage increases lower job opportunities for youth and students – not through jobs lost, agreed – but through jobs foregone when business owners forego adding positions to his or her small business.
    3. There’s no (non-politically motivated) evidence indicating today’s US labor market needs MW regulation (although it makes great political rhetoric for the minority of the nation who still votes).
    4. Today, anyone is free to leave a job to move to another employer who pays more to retain his or her workforce – leaving the trite “people are stuck” argument dead on arrival
    5. The principles of truly representative self government on which this nation was founded (although forgotten) still hold true.

    It’s unfortunate that bureaucratic, no-longer-representative government – unwittlngly cheered on by many of my HR colleagues – have lost sight of what is best for those we intend to serve. I fear our land of opportunity is quickly erroding into the land of regulation and wealth redistribution through “feel good” laws that only further hinder the common populist’s success upon enforcement.

    John Schindler
    HR Manager in Washington State

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