Economists say timing is bad

By Bonna Johnson
The Tennessean, July 24, 2009

In a time of rising joblessness across most of Tennessee, an increase in the federal minimum wage today could further send more people into unemployment and even prolong the recession, according to some small-business owners and economists.

"This really puts a crunch on owners," said Phillip Morgan, who employs a half-dozen teens and young adults at his Pizza Done Right restaurant in Joelton. Morgan said a 70-cents-per-hour minimum wage increase that takes effect today means if one of his younger workers leaves to go to college this fall, he won't hire a replacement.

Many of the 89,000 Tennesseans earning minimum wage or less will begin to get $7.25 an hour today, up from $6.55, the last of a three-step increase that began in 2007. That's an extra $28 a week for full-time workers. In Tennessee, only about 6 percent of hourly workers earn minimum wage or less, according to 2008 data from the U.S. Bureau of Labor Statistics.

The increase comes as the unemployment rate edged higher in 84 of Tennessee's 95 counties in June, with 82 counties reporting unemployment of 10 percent or greater, according to a state Department of Labor and Workforce Development report on Thursday.

While advocates say paying higher wages to workers will pump more money into the economy just when a boost is needed, others say the timing during a recession couldn't be worse and could lengthen hard times by forcing small businesses to lay off the same workers whom the pay hike was meant to help when it passed Congress under better economic conditions.

"It's a 10 percent increase, which is huge," said William Dunkelberg, chief economist for the National Federation of Independent Business, a business lobbying organization for small and non-chain businesses. "You don't get raises like that during a recession."

"How will they absorb the increase?" asked Rajeev Dhawan, director of Georgia State University's Economic Forecasting Center. "They will either hire less people or they will do less business."

Push starts for $10 rate

Meanwhile, backers of the wage increase say it's long overdue for millions of the working poor, and they see it as a boost to spending rather than a threat to the economy. And some say it doesn't go far enough.

It would take a wage of $9.83 an hour today to match the buying power of minimum wage of 1968, according to members of the Let Justice Roll Living Wage Campaign.

They're pushing for a $10-an-hour minimum wage by next year. A further wage increase could eventually become a reality: One of President Barack Obama's campaign promises included raising the minimum wage to $9.50 an hour by 2011.

"The way the economy is now, and for a man who is trying to raise a family, it's not enough," said Julius Stoval, 26, who earns minimum wage as a worker at Shur Brite Hi Speed Car Wash here. He has two children in Chicago and a third on the way in Nashville.

If bosses decide to scale back hours as a way to keep labor costs down, that would make it even harder for workers like him to cover the cost of paying bills and buying clothes, Stoval said.

Maryanna Clarke, founding artistic director of the Tennessee Women's Theater Project, pays actors $12 an hour during rehearsals. "I couldn't call my theater a professional company if the actors could make more working at McDonald's," said Clarke, who supports a higher minimum wage.

"When people at the lowest rung make more money, it goes right back into the economy," she said. "They go out and buy stuff that they need and stimulate the economy."

In fact, a May report by the Economic Policy Institute, a labor-friendly Washington think tank, estimated the latest 70-cents-an-hour increase would generate $5.5 billion over the next year and help boost consumer spending.

Copyright 2009 The Tennessean

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