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Minimum wage goes up Thursday

Base rate goes from $5.85 to $6.55

POSTED: August 8, 2008 5:00 a.m.

WASHINGTON -- About 2 million Americans get a raise Thursday as the federal minimum wage rises 70 cents. The bad news: Higher gas and food prices are swallowing it up, and some small businesses will pass the cost of the wage hike to consumers.

The increase, from $5.85 to $6.55 per hour, is the second of three annual increases required by a 2007 law. Next year's boost will bring the federal minimum to $7.25 an hour.

Workers like Walter Jasper, who earns minimum wage at a car wash in Nashville, Tenn., are happy to take the raise, but will still struggle with the higher gas and food prices hammering Americans.

"It will help out a little," said Jasper, who with his fiancee support a family of seven, and who earns the minimum plus commissions when customers order premium car-wash services.

The bus fare he pays each day to get to work already went up to $4.80 this spring from $4. "I'd like to be on a job where I can at least get a car," he said.

Last week, the Labor Department reported the fastest inflation since 1991 — 5 percent for June compared with a year earlier. Energy costs soared nearly 25 percent. The price of food rose more than 5 percent.

So the minimum wage hike is "a drop in the bucket compared to the increases in costs, declining labor market, and declining household wealth that consumers have experienced in the past year," Lehman Brothers economist Zach Pandl said.

The new minimum is less than the inflation-adjusted 1997 level of $7.02, and far below the inflation-adjusted level of $10.06 from 40 years ago, according to a Labor Department inflation calculator.

Twenty-three states and the District of Columbia have laws making the minimum wage higher than the new federal requirement, a group covering 60 percent of U.S. workers, according to the Economic Policy Institute, a think tank.

"You get desperate, because you can't really pay for everything," said Gladys Lopez, 51, a garment worker from Adjuntas, Puerto Rico, who makes military uniforms and has earned the federal minimum for 18 years.

She says she would need to make at least $50 more a week to pay all her bills and take care of her 84-year-old mother, whom she supports.

When the minimum rises again next year, catching up with more states, more than 5 million workers will get a raise, said Lisa Lynch, dean of the Heller School for Social Policy and Management at Brandeis University.

Some small businesses are already making plans to raise prices to offset the higher wages they have to pay their workers.

David Heath, owner of Tiki Tan in College Station, Texas, said the increase will force him to raise prices for his monthly tanning services by about 12 percent. Tiki Tan had been paying its employees $6 per hour.

"There just isn't any room for profit, and so this is why prices will have to go up," he said, citing the wage increase and higher fuel costs. "I have to recoup those costs."

The increase in the minimum wage could push food prices even higher by rising the pay for agricultural workers, said Brian Bethune, chief U.S. economist at consulting firm Global Insight.

But he said he did not expect the change to have a major impact on the economy because recent increases in productivity, which enables companies to produce more with fewer workers, are keeping labor costs in check.

That makes it unlikely the minimum wage increase will trigger a "wage-price spiral," in which workers facing higher costs demand more pay, which in turn causes companies to raise prices higher, sending inflation coursing through the economy.

And most businesses, even restaurants and other service sector companies, already pay above the minimum wage anyway. Dan Whitaker, general manager at Anis Bistro in Atlanta, a casual French restaurant, said employees earn at least $8 an hour.

"You can't get a dishwasher for minimum wage," he said.

 

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