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Bad Timing For Incoming Minimum Wage Increase

CNBC.com
Tuesday, 7 Jul 2009 | 3:44 PM ET

The federal minimum wage is set to increase later this month, and that could be bad news for small business owners already struggling in a pinched economy.

The federal minimum wage will increase to $7.25 an hour July 24, up from the current $6.55 as part of a three-tiered increase started in 2007 under the Bush administration.

Already, 14 states and Washington, D.C., mandate a minimum wage exceeding the new minimum, and seven states match the new floor.

But for companies in the remaining states, the increase couldn't come at a worse time. "African-Americas, Hispanics, teens, and young mothers will be affected. Growing states will be affected and low-skilled workers will lose their jobs," said Diana Furchgotth-Roth, Senior Fellow at Hudson Institute.

With the unemployment rate at 9.5 percent there are going to be even more job cuts, she said. Employers are going to have to lay-off their employees because they are not going to be able to pay them, said Furchgotth-Roth.

David Chin from the Center for American Progress takes an opposite view.

“The number of households being affected is not that great. This will create more demand by putting a little more money in peoples pocket," Chin said. "I don’t know if it's appropriate or not but people knew this was coming for a while."

"It's tough timing," John Silva, chief economist at Wells Fargo told the Wall Street Journal. He expects low-skilled workers and teenagers will be hit hardest. "You're going to have a very negative response. In a recession like this, companies don't have the pricing power to pass on those costs."

The United States now has fewer jobs than it did nine years ago, even though the work force has grown by 12.5 million people since then.

It's the first time since the Great Depression that a recession has wiped out all the jobs created during the previous business cycle, according to Heidi Shierholz, an economist at the Economic Policy Institute, a think tank.

That's a "testament to both the enormity of the current crisis and to the extreme weakness of jobs growth from 2000 to 2007," Shierholz said.

The Labor Department said last week that U.S. payrolls shrank by 467,000 in June, more than analysts expected. That pushed the unemployment rate up to 9.5 percent, a 26-year high.

There are now 131.7 million jobs in the United States, the department said. That's fewer than in May 2000, when companies reported 131.9 million jobs.

Meanwhile, Jonathan Tasini, executive director of The Labor Research Association, says the minimum wage increase is badly needed but still isn't enough for American workers.

"If the minimum wage actually tracked productivity ... the minimum wage today would be $19 an hour," Tasini said on CNBC Reports.

American workers making minimum wage and working 52 weeks per year without vacation will make just $14,000 under the new increase — an amount Tasini refers to as a "wage of poverty."

Last July, the wage floor was raised from $5.85 per hour. The increases were mandated by a bill passed by Congress in 2007, when the minimum was $5.15 an hour, where it had stayed for years.

The Associated Press contributed to this report.

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