Effective today, the new minimum wage throughout the land is $7.25–up from $6.55 an hour. Some states were already there and others have minor increases to come up to this amount. Still, economists from coast to coast are debating whether this is a good thing for the country, or if this is absolutely the worst time that this could happen. The airwaves are full of experts saying that this increase means more money in the pockets of consumers who will spend it and boost the economy. The opposing position is that the increase will force some businesses to not hire as many employees or even cause some to be given fewer hours or be let go.
We’re talking about $.70 an hour–all of $28 a week more for a full-time employee or $1,428 a year. Minus taxes, this works out to about $1,214–about $50 a paycheck. That’s a nice increase and I doubt anyone could convincingly argue that it won’t help the economy to have that sort of infusion of cash. But it has to come from somewhere.
It either is coming directly out of the pockets of the business owners, or it’s coming from increased prices for goods and services. It’s a case of rising water lifting all boats. The equilibrium of the system is maintained. If businesses absorb the cost of the increase, there is no doubt that workers will have fewer hours or that some may lose their jobs. The reality is that a worker who has 1 hour less a week is down $7.25 rather than up $.70 for that hour. If businesses increase their prices, that $.70 increase is not going to go very far either. The price of a gallon of gas can jump that much in the span of a few days!
As any good economist knows—or should know—the answer to the question whether this is good or bad for the country at this time is one that won’t be known for another 12-18 months and even then, only if enough data is in and has been analyzed with regard to spending, unemployment, etc. The answer will also depend on how much of an offset there is between spending and job losses as they relate to this increase. Figuring out root cause may be difficult so whether we’ll ever know the answer is itself a question.
What we can safely say is that there will be positive and negative consequences to this increase and only time will tell if it was a good thing. Now, if only Congress had a crystal ball and could look ahead to future effective dates and determine the best time when something should be implemented!
http://www.cnn.com/2006/POLITICS/06/27/congress.wage/index.html (This article points out how it was the Dems that wanted this!)