Ups and downs of minimum pay

Published 10:49 am Friday, July 3, 2009

In just a couple of weeks, workers’ pockets will feel a bit heavier, while employers will likely see less revenue coming in.

The federal minimum wage is set to rise from $6.55 per hour to $7.25 per hour on July 24, the third straight year the minimum wage has risen.

Minimum wage rose from $5.15 per hour in 2006 to $5.85 in 2007 and then from $5.85 to $6.55 in 2008.

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Those who currently make minimum wage are looking forward to the increase.

“I’m ready for it to go up,” said Sam Sullivan, a cashier at Ingram’s Curb Market. “I’m getting ready to move out of my house, so any kind of extra money would be really helpful.”

While the increase may be helpful for those making minimum wage, some believe it will not be beneficial for everyone.

“The rise in the minimum wage will only exacerbate the problem of unemployment during this recession,” said Troy University economist Judson Edwards. “Locally, the unemployment rate is eight percent, which is over double the 3.5 percent figure from a year ago. So accordingly, if you have excess supply of any good or service, such as labor, in order to reduce supply, you lower the price to stimulate demand from consumers.”

Edwards said the new increase would not encourage employers to hire new employees.

“Consumers of labor are employers,” Edwards said. “So, the minimum wage law does not allow for labor prices to fall to the point where employers are enticed to hire new employees. This means higher unemployment.”

Edwards said he understood employees’ excitement over getting paid more, but warned of the consequences of such an increase.

“From an employee’s perspective, a pay raise is a positive because it’s more disposable income,” Edwards said.

“But, covering the cost of the increase may cause employers to cut staff. This is especially true during this complex recession of tight credit market and diminishing consumer demand.”

Edwards also said the number of minimum wage workers that are employed will likely drop.

“The inflexibility of minimum wage laws is particularly detrimental in this economic climate,” Edwards said.

“The wise public policy choice would be to delay enforcement of the new increase until the economic recovery is clearly underway, which at this point could be one to two years out.”

However, some local employers said they don’t expect the increase to affect their hiring.

Troy Associate Vice Chancellor of Financial Aid Carol Ballard works with the university’s workship program, which helps to place Troy students in on-campus jobs.

“It shouldn’t affect our hiring,” Ballard said.

“In the budgeting process, we were told all salaries would be adjusted based on the increase. So, our budgets have adjusted, and we shouldn’t lose any positions.”

The university also has a similar work-study program that appears to be safe.

“We also have work-study programs and that will also be adjusted for the increase, so everything should be adjusted,” Ballard said.

“We don’t foresee any changes for our students.”

Other employers, such as the City of Troy, are unsure if the increase will affect their hiring.

“Each department has their own budget, so it’s up to the budget for each department as to whether or not minimum wage affects hiring,” said Human Resources Director Brenda Sims.

Troy City Clerk Alton Starling said the budgets would be affected by the increase.

“When you have increased costs, you always have to budget accordingly, so it does have an impact,” Starling said.

However, Starling also said the increase was something the city has dealt with before.

“We do hire summer help for Parks and Recreation and different things, so it might affect us a little bit,” Starling said.

“Of course, last summer, when the minimum wage went up, we had a certain number of spots to fill, and we filled them.”

However, it isn’t just employers and employees that will be affected by the increase in minimum wage.

According to Edwards, consumers will likely feel the repercussions of the increase.

“Generally, these costs are passed on to the consumer unless they are absorbed by the company in one of the factors of production or willingness to reduce profit, which is unlikely,” Edwards said. “The minimum wage also plays an inflationary role on prices, especially in lower-order goods and services. For example, the cost of a Burger King or McDonald’s burger will likely increase because of this action.”

While Edwards said the increase would hurt many people, Sullivan was still excited about a higher paycheck.

“People need to realize that any time you can get more money, it helps out,” Sullivan said.