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Minimum Wage Hits $7.25 As Some Businesses Strain

The third minimum wage increase in three years, effective today, is a moneymaker and a money-taker: Millions of workers soon will see pumped-up paychecks, while many already-struggling businesses face the burden of increased payroll costs.

Between 3 million and 5 million people will be affected by the minimum wage rise from $6.55 per hour to $7.25 per hour, says Secretary of Labor Hilda Solis.

Workers in 30 states and industries covered by the federal Fair Labor Standards Act are entitled to the new wage. Those employed in the District of Columbia - where the minimum wage is set at $1 more than the federal minimum wage - also will get a boost, to $8.25.

"The extra disposable income comes to about $120 a month," says Solis. She expects workers to spend much of that cash in their local communities.

But business owners such as Robert Mayfield, who owns five Dairy Queen restaurants in central Texas, don't expect any increased spending to offset the added salary expenses.

Mayfield says he'll have to increase his rates to more than $8 an hour to remain competitive with rival employers who will now pay $7.25.

"We were already paying a good bit more than the minimum, but that's what it took to get good people," he says. "You have to stay competitive."

Olympia Candies owner Bob McGrath says he already cut the salaries and work hours of some sweet shop employees to deal with the economic doldrums, so being forced to pay more for his minimum-wage workers just doesn't make sense.

"Here we're having (employees) take pay cuts, but we're hiking minimum wage," he says. "Something is wrong."

Today's is the final increase based on 2007 legislation. On July 24, 2007, rates rose to $5.85 per hour. One year later, they hit $6.55. Solis says these salary bumps were a long time coming - the prior minimum wage bump was in 1997.

The Labor Department's Solis expects the financial impact on businesses to be minimal. And besides, she says, firms had quite awhile to prepare for the financial hit. "Many businesses have already planned ahead," she says.

Yet, McGrath, of Cleveland, says the current economic conditions make this increase particularly difficult.

"In this economy, you can't raise prices," he says. "Margins are getting hammered," but to retain customers, he's still offering discounts on his sweets. "It's definitely a challenging time," he says.

1 Responses »

  1. Wage increases based on legislative action is nothing more than another tax on businesses.