Your Gains, Losses In Minimum Wage Hike

The question of whether the new hourly minimum will help or hurt the economy triggered quite a debate on our Web site and our blog over the past week. So, NPR senior business editor Marilyn Geewax returns to discuss what you had to say with host Liane Hansen.

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LIANE HANSEN, Host:

This is WEEKEND EDITION from NPR News. I'm Liane Hansen.

On Friday, the minimum wage went up by 70 cents an hour. It's now $7.25 an hour. And millions of Americans will have that extra money in their next paychecks. The question of whether the new hourly minimum wage will help or hurt the economy triggered quite a debate on our Web site and our blog over the past week. So NPR senior business editor Marilyn Geewax is here once again to discuss what you had to say. Welcome back, Marilyn.

MARILYN GEEWAX: Thank you.

HANSEN: Let's hear from our listeners first. Melissa Gutierrez(ph) of Dallas, Texas is a low-wage worker who says every little bit helps right now.

MELISSA GUTIERREZ: My family has been living on $7.00 an hour since June when I was lucky enough to get a job at all after eight years out of the job market. My husband has been out of work since March. And his 15-plus years experience in an IT specialty is neither helpful nor harmful at this point. That $7.00 an hour is keeping a roof over our head for longer than we would making nothing.

HANSEN: We also were contacted by small business owners who said that in this recession, a wage hike is going to mean layoffs. Janice Pulaccino(ph), who owns two small cafes in Brooklyn, New York, wrote I have cut everything I can cut - my own salary last year for owning two businesses was under $45,000. And I increased my personal debt to pay business bills, but I managed to keep all 23 jobs. I will be laying someone off due to the minimum wage increase in my payroll. And for what? Pennies on the dollar? Those are some pretty strong reactions, Marilyn. What do you think?

GEEWAX: I am not surprised at all by the intensity of the reaction. Minimum wage is one of those hot-button issues for Americans, and it has been since it was instituted in 1938. Conservatives see the minimum wage as a clear example of unnecessary government intervention in the labor market. They think supply and demand alone should really set wages, not politicians in Washington.

But other people see this as a very simple and important way to make sure that employers don't exploit the most vulnerable workers. But the emotional reaction tends to be far disproportionate from the minimum wage's actual impact on the economy.

This latest pay raise could add maybe $5 billion or so to paychecks over the coming year. And, you know, obviously, to the people who get that raise, it's important. But in a $14 trillion economy, that's not going to change the direction of things.

HANSEN: Marilyn, you know, we also heard from some people who were concerned about the welfare of workers who rely on tips to fill out their incomes. Elizabeth Fraise(ph) of Quicksburg, Virginia said the tipped workers are being left out.

ELIZABETH FRAISE: The actual pay for tipped workers is not going up. Please tip your waiter. I hope NPR addresses this when reporting on minimum wage issues.

HANSEN: Marilyn, what is she talking about?

GEEWAX: Minimum wage for tipped workers - people like waiters and waitresses - is a little bit complicated. Here's how it works: An employer is required by law to provide tipped workers with a base pay of $2.13 an hour. And the law also requires employers to make sure that their workers' tips - when it's combined with that base pay - will add up to the minimum wage.

So let's say you work at a small diner that doesn't get much business. Your boss is supposed to give you $2.13 an hour, and then if your tips add up to only maybe another $3.00 an hour, the boss has to top it off. He has to get you up to the minimum wage. Before Friday, that threshold was $6.55, but since Friday it's $7.25.

So, if you're the very lowest-paid tipped workers, then, in fact, Friday probably brought you a raise. But if you've been averaging $8.00 an hour all along, Friday was meaningless, it didn't do anything for you. And with the economy as weak as it is, a lot of workers say their tips are really down. So they not only didn't get a raise on Friday, they actually are doing worse than a year ago.

In seven states - most of them are out West - they require employees to give tipped workers the full minimum wage, but that's really the exception. For the most part, tipped workers are feeling pretty forgotten.

HANSEN: We want another comment from a listener. This is from Derrick Crane(ph), who wrote: The people who maintain their jobs will, of course, be receiving more money for their labor. However, there will be less jobs to be had as some marginal employers lay off employees to lower cost. Furthermore, higher wages have a tendency to increase inflation, which often eliminates any wage gain. Now, he says, higher wages will just mean higher costs for goods, which will cancel out any benefit of a bigger paycheck. Is this accurate?

GEEWAX: Liane, that's one of those things that's open argument. Conservatives say that obviously, if wages go up, then prices are going to go up. And higher prices hurt the wage workers the most. But this year inflation's been really low. Actually, over the last 12 months, the government's Consumer Price Index has fallen about 1.4 percent.

So, liberals say that inflation is not the problem right now. The real issue is that low-wage workers don't have enough money to pay the rent. So, if you want to help the economy, they say you should put a little more money into the pockets of people who need it the most.

HANSEN: NPR's senior business editor Marilyn Geewax regularly joins us to discuss the economy. And if you've got a question or if you'd like to suggest a topic, go to our blog, NPR.org/Soapbox. Marilyn, thanks very much.

GEEWAX: You're welcome.

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Minimum Wage Rise: More Money Or Fewer Jobs?

Federal Minimum Wage Goes Up

This Friday, the federal minimum wage will rise to $7.25 an hour, up from $6.55.

Conservative economists are worried that the government-mandated raise will force small businesses to lay off workers. They note that the job market has deteriorated since Congress approved the 10.7 percent pay raise two years ago. In the summer of 2007, the U.S. unemployment rate was running at about 4.7 percent. Today, it is 9.5 percent. Mandating higher wages could force some employers to cut jobs, the argument goes.

But liberal economists say this summer is the perfect time for a wage hike: It will put more money into the pockets of people who need it most. Fatter paychecks will stimulate spending and help the economy, they say. Kai Filion, a policy analyst for the Economic Policy Institute, a left-leaning research group, says this wage hike will generate $5.5 billion in consumer spending over the next 12 months.

Still, most analysts say that in an economy as large as this one, a minimum-wage hike won't have much impact. For a sense of scale, they point to the stimulus plan Congress approved earlier this year. That $787 billion package was more than 14 times larger than any increased consumer spending generated by the wage hike.

No matter what the impact on the economy as a whole, it will be helpful to many individuals. The Labor Department says roughly 5 million workers report earning less than $7.25 an hour.

The minimum-wage increase will be felt by many others as well. That's because the federal minimum wage serves as a benchmark — when it goes up, it raises the floor under all low-wage workers. So many people now earning up to $9 an hour also stand to get raises as their employers adjust their pay scales upward. That shift would affect another 10.5 million workers or so, according to the Labor Department.

David Card, an economist at the University of California, Berkeley, says much of the research done on the minimum wage is driven by political beliefs rather than data. "This is one of those ideological battlegrounds," he said. "We constantly see papers thrown up that purport to show a big difference" in employment after a wage hike, he said.

Card himself co-authored a famous study on the impact of a minimum wage hike in New Jersey's fast-food industry in the 1990s. His study found no significant change, good or bad, in the total number of jobs.

Even some conservative economists concede that studies show that modest wage hikes generally have statistically insignificant impacts on employment nationwide. But they add that for the least-skilled workers, such as teenagers, it will matter. Economist David Neumark of the University of California, Irvine, estimates that this year's wage increase will eliminate about 300,000 jobs for people between the ages of 16 and 24.

"Given the situation we're in now [with very high unemployment], raising the minimum wage just seems like a particularly bad idea," Neumark said.

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