Free Lance Star (VA) State economist doubts impact will be large

By Chelyen Davis
Free Lance Star (VA), July 23, 2009

Tomorrow, several million American workers will get a pay raise.

That's the day the federal minimum wage goes up to $7.25 an hour, from $6.55 per hour.

It's the final bump in a three-year phased-in increase for some of the nation's lowest-paid workers.

But this one comes during the worst economic recession in years. Unemployment nationally was at 9.5 percent for June, and the country has lost more than 3 million jobs in 2009 alone.

Virginia Employment Commission chief economist Bill Mezger said the past two years' increases in the minimum wage created a small bump for the economy, but he doubts this one will.

"The minimum wage [increase] generally acts like a boost to the economy," Mezger said. "Most of these people that get the increase generally spend it back it puts a little bit more money back in circulation, it creates a little bit more business."

But given the recession, and the fact that the wage was increased twice recently, "it may not be that much of a good impact," Mezger said.

Increasing wages might also lead to some job eliminations, he added, so any economic benefit of higher wages will probably be canceled out.

The impact is also less likely to be felt in urban areas, where competition generally means workers are paid higher wages anyway.

"Where you'll see most of the impact will probably be in the rural areas and the smaller firms where the competition is not quite as intense," Mezger said.

He said Virginia doesn't track the number of minimum-wage workers, but he estimates it at around half a million, in a workforce of 3.6 million.

A study by the Economic Policy Institute, an economic think tank, indicated that past increases have not been shown to create job losses.

The National Federation of Independent Business, however, opposes mandatory wages and says this increase will hurt small businesses.

Julia Hammond, director of the Virginia NFIB branch, said in a statement that most minimum-wage workers are employed by small businesses, and that those paying wages higher than the minimum may feel pressured to raise their wages as well, which could choke growth.

A mandatory wage level "puts a stranglehold on America's top job creators: small businesses," Hammond said. "Mandatory minimum-wage increases end up reducing employment levels for those people with the lowest skills."

Not all business groups agree; a group called Business for Shared Prosperity sent out a release praising the increase, saying it will boost consumer spending.

Minimum-wage workers are likely to welcome the increased pay.

In a written release, Secretary of Labor Hilda Solis said the increase "will help workers better provide for their families in the face of today's economic challenges" and that it would especially benefit working women, who make up two-thirds of those earning minimum wage.

Data from the Bureau of Labor Statistics suggests that minimum-wage workers tend to be young and employed in service occupations, including hotels and restaurants.

The Economic Policy Institute says those workers also tend to provide more than half of the income for their families.

A full-time worker making $7.25 an hour will earn $15,080 a year before taxes, above the poverty line of $10,830, if they're single. The poverty line for a family of four is $22,050.

Chelyen Davis: 540/368-5028

Copyright 2009 Free Lance Star Publishing Co.

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