Our Human Resources Blog

Last Friday, July 24th,   the US Department of Labor increased the federal minimum wage to $7.25 per hour. The wage increase was the last and final part of a 3 step increase. ($5.15 to $5.85 in July 2007, to $6.55 in July 2008)  This was the first increase in the federal minimum wage in 10 years. The legislation was signed into law in 2007 and was implemented to help improve the lives of families across the nation.

Although many economists believe the impact to the economy will be fairly small, as it affects a small segment of the labor force and many states have a higher minimum wage in place, it does come at an inopportune time.  When Congress first passed the law, the unemployment rate was at 4.7% and the country was not yet in a recession.  Since then, the jobless rate has doubled to 9.5% and we are in a full blown recession.

So- the question might be- will this wage increase keep employers from hiring low skilled employees?  If so, it could adversely affect the potential job opportunities for one of the groups that the increase was supposed to help- the young workers who are already struggling to find jobs. According to the National Restaurant Association, the last minimum wage increase cost their industry more than 146,000 jobs. The increase could also put further strain on the economy. People who are in minimum wage jobs tend to spend available funds on consumer goods. If they are unable to find these jobs, they won't have money to spend.

For small businesses, the increase could be more significant. The recession has already forced some small businesses to impose pay cuts. The increase in wages will need to be absorbed somewhere?  Will businesses respond by cutting back on employee's hours, letting employees go or by raising prices of products? Any way that you look at it, the increase has the potential to affect both the unemployment rate and consumer spending. All of which can be further damaging to the economy during this high unemployment recession.