The federal minimum wage rises Friday from $6.55 to $7.25 an hour, bringing with it controversy about whether the increase is good or bad for the economy.

The raise, which will affect about 4 million workers nationally, is the third and final increase mandated by Congress in 2007.

For a full-time minimum wage earner, the bump up means $28 a week more.

“When you have low income, any kind of increase in your paycheck is a big help,” said Sharon Davis, a minimum-wage earner who has a clerical job for four-and-a-half hours a day.

Her small increase “makes you feel that much better about paying your bills,” said Davis, a senior citizen who entered the workforce to augment her husband’s disability income.

But for small-business owners struggling to make a profit, the mandated increase may present problems.

The National Small Business Association reported this week that the number of small businesses hiring new employees in the past 12 months dropped from 18 percent in December to 9 percent in July, and about two-thirds reported decreases in sales and profits.

Each minimum wage increase “is killing me,” said Kansas City restaurant owner Manny Lopez, who said that each increase causes him to cut staff because he can’t raise prices enough to cover the higher payroll costs.

“I have 80 on payroll,” Lopez said. “Last increase, I had to cut 12 to 15 part-time people. This time I will have to shave it again. As an independent restaurateur, I can’t survive without staff cuts.”

The U.S. Department of Labor says the change will mean a raise for minimum-wage workers covered by the Fair Labor Standards Act in 30 states where state minimums are lower than the federal rate.

Missouri’s minimum wage rose to $7.05 an hour in January 2009, so the federal raise amounts to just a 20-cent-an hour in Missouri. (The higher minimum, whether federal or state, takes precedence.)

Kansas lawmakers ordered that state’s minimum to rise to $7.25 in January 2010; until then, it stands at the nation’s lowest, $2.65, for a few thousand workers not covered by federal labor law.

Generally, the federal law covers workers at enterprises with sales of at least $500,000 a year and those that engage in interstate commerce, which includes accepting national credit cards, so most Kansas workers will be covered by the federal increase.

Advocates for the increase note that in real terms (adjusted for inflation), $7.25 an hour has about 25 percent less buying power than the $1.60 minimum wage had in the late 1960s.

The Economic Policy Institute, a worker-oriented research group, says the minimum wage has failed to “keep pace with workers’ capacity to produce goods and services.”

Opponents say each minimum wage increase causes more entry-level workers to lose jobs because employers, like Lopez, cut staff to accommodate raises for employees who remain.

Just as various think tanks disagree about minimum wage mandates, some business owners also have different opinions. For example, about 1,000 business leaders this week released a “Business for a Fair Minimum Wage” statement.

“Higher wages benefit business by increasing consumer purchasing power, reducing costly employee turnover, raising productivity, and improving product quality, consumer satisfaction and company reputation,” the document said.

Signers included Costco, the U.S. Women’s Chamber of Commerce, and small-business owners from all 50 states.

A study by economists at the Federal Reserve Bank of Chicago estimated that the minimum wage increases in July 2007 and July 2008 have generated $4.9 billion in spending and that this year’s increase would put another $5.5 billion into the economy.

But other business owners and some economists say the required increase is coming at the worst possible time. In mandating the three-step increase three years ago, Congress did not foresee the current recession.

A report released Thursday by the Families and Work Institute said the recession has caused revenues to fall for two-thirds of employers, and 90 percent of those with lower revenues have cut their labor costs.

Those against the minimum wage hike say that higher rate will cause employers to raise the quality bar for employees, thus shutting out the least-skilled, the very workers the law was designed to help.

But U.S. Labor Secretary Hilda Solis issued a minimum wage statement that, in part, said, “Contrary to popular belief, minimum wage earners are not just teenagers working summers bagging groceries or selling jeans at the mall. Many minimum wage earners are in fact involuntary part-time workers because their hours have been cut during this recession.”

There’s a third point of view that says debating the minimum wage is a tempest in a teapot.

Only a small percentage of U.S. workers earn minimum wage because market forces have pushed most wages higher. Indeed, it’s difficult in many cities to find minimum wage earners, even among the proverbial burger flippers.

Regardless of the wage hike’s effect, there is precedent for raising the minimum wage in a down economy. The federal rate (then 25 cents an hour) was established in 1938 as a key to economic recovery from the Great Depression.


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