Democrats Cheer Wage Hike
With State Mimimums Higher, Effect of Federal Rise Debated

By Xiyun Yang
Washington Post Staff Writer
Wednesday, July 25, 2007

For workers at the bottom of the U.S. economy, paychecks got a little fatter yesterday.

On Capitol Hill, Democrats celebrated their achievement in pushing through the first increases in the federal minimum wage in a decade. Under a law that they championed and that President Bush signed in May, the minimum wage jumped 70 cents, to $5.85 an hour. The hike ended the longest stretch without an increase since the federal minimum wage was enacted in 1938.

The wage will increase another 70 cents in each of the next two summers to reach $7.25 an hour in July 2009, a 41 percent increase over the $5.15 wage that had been in place since 1997. An estimated 5.3 million workers earn less than $7.25 an hour, according to the Economic Policy Institute, a Washington research group.

"Welcome to pay raise day of 2007," Sen. Edward M. Kennedy (D-Mass.) said yesterday at a rally of union and activist groups on Capitol Hill.

However, even backers of the new law acknowledged that its economic impact will be limited. Economists say wages for many low-paying jobs had already been pushed up by market forces and state initiatives. Thirty states and the District have adopted minimum wages exceeding the old federal level. Maryland's minimum is $6.15, the District's is $7, and Virginia's is $5.85 for most workers.

In many major metropolitan areas, including the Washington region, the cost of living is so high that relatively few workers earn the minimum wage. For example, dishwashers in the region make an average of $8.05 an hour and lifeguards earn $7.98, according to federal data.

"In terms of the D.C. area, there will be a very modest impact" from the new law, said Liana Fox, an analyst at the Economic Policy Institute. "For many people, the minimum wage has become irrelevant."

Analysts say those who earn the minimum in the Washington area tend to be recent immigrants. Peter Ko of Jackey's Cafe in Chinatown said dishwashers who have newly immigrated are paid the District minimum. In his view, the increase in the federal minimum makes sense. "Everything is so expensive nowadays, with gas and everything," he said. "It's about time."

Although many workers who earn low wages will not be directly affected by the increase, economists estimate that some workers will benefit indirectly as small-business owners try to stay ahead of the curve by raising wages. "If the minimum goes up a dollar, their wages may go up 30 cents," Fox said.

About 12.5 million Americans will be affected by the time the legislation is fully implemented in 2009, according to estimates by the Economic Policy Institute.

For someone working a minimum-wage job 40 hours a week, the three years of federally mandated wage increases would mean an annual pay hike from about $11,000 this year to about $15,000 by 2009.

Critics of the new law argue that an increase that big will hurt some people by forcing businesses to trim hiring.

"Generally it's a bad thing," said James Sherk, a fellow in labor policy at the Heritage Foundation in Washington. "There's no evidence it's going to reduce poverty."

A minimum-wage increase 10 years ago cut 146,000 jobs from the restaurant industry and postponed 106,000 hires, according to a survey by the National Restaurant Association.

Evidence suggests that there may be some reduction in employment among the least skilled and the youngest workers, said Harry Holzer, professor of public policy at Georgetown University. But he added that inflation had so outpaced the minimum wage over the past decade that the negative effects could be limited.

Irene Cole, a single mother of two from Atlanta who attended yesterday's rally on the Hill, was grateful for the increase and looks forward to more of them.

"From $5.15 to $5.85 -- that's . . . a big raise, and we do thank you," she said.

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