The first minimum wage increase in a decade took effect this week, prompting debate among business owners

By Angus Loten
Inc., 7/24/07

Following the first raise in the federal minimum wage in a decade, which took effect this week, business, trade, and employee groups continue to clash over its long-term impact on small business.

As of Tuesday, an estimated 13 million minimum-wage earners will see wages raised by 70 cents to $5.85, with two more increases to $7.25 over the next two years. The hike follows the passage of the Fair Minimum Wage Act, which was inserted into an Iraq war spending bill signed into law in May. The bill included a $4.8 billion tax package to offset higher payroll costs for small businesses.

This week, a national coalition of large and small employers hailed the raise, saying it will boost consumer spending, reduce employee turnover, and increase productivity.

"We cannot build a strong 21st century economy when more and more hardworking Americans struggle to make ends meet," the group said in a statement signed by business owners.

According to Small Business Majority, a San Francisco-based advocacy group, two out of three small businesses in a recent survey supported the wage hike.

"A minimum wage that promotes stability and economic prosperity is a necessary component of progress," John Erlenmeyer, the group's CEO, said in a statement. "It is time for traditional organizations who claim to represent small businesses recognize this."

For its part, the National Federation of Independent Business, a Washington-based small-business lobby with more than 600,000 members, continues to oppose any mandated increase in wages, saying it will force employers to raise prices or cut jobs.

"The overwhelming majority of economists continue to affirm the job-killing nature of mandatory wage increase," the group said in a statement.

A study last year by the Employment Policies Institute, a Washington-based employment research group, said a 10 percent increase in the minimum wage would result in up to a 1.2 percent decline in small-business employment. The study, which analyzed two decades of government labor data, said the impact would be even higher among low-skilled workers and teenagers.

"Low-skilled workers are getting much less than has been promised," Jill Jenkins, the group's chief economist, said this week. "Over time, many may even find themselves worse off."

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