By V. Dion Haynes and Emma L. Carew
Washington Post Staff Writers
Friday, July 24, 2009
The federal minimum wage will rise to $7.25 from $6.55 an hour Friday, an increase aimed at giving workers at carwashes, restaurants, child-care centers and retail shops more buying power but one that has sparked criticism from some small-business owners, who say it could threaten their ability to survive in a weak economy.
The law applies in 30 states, including Maryland and Virginia. The increase also affects the District, because it sets its minimum wage $1 higher than the federal rate. The remaining states already pay minimum wages above the federal rate.
Washington area economists say only a small number of businesses here are paying the minimum wage, largely because of the competition for good workers -- even on the lower end of the pay scale -- in a costly region.
"We try to pay a little higher [than minimum wage], trying to attract the best people that we can," said Richard Meddings, district manager of Flagship Carwash Center in the District and Maryland. He added that only "a handful" of his employees, mainly new hires, are paid $7 an hour.
"I don't think it's going to alter the business for now," he said of the cost of increasing wages. "I think it's probably going to help those who are only making minimum wage to come up to a little bit better standards."
Congress devised three annual increases in the minimum wage well before the full brunt of the recession was known. The rate rose to $5.85 from $5.15 an hour in 2007, then climbed to $6.55 last year. The increase to $7.25 is the final step under the legislation. Even with the raise, workers are still behind when inflation is considered: The purchasing power of someone being paid minimum wage is 18 percent below what it was in 1968, economists say.
The law, which affects about 4.5 million workers among a labor force of 129 million, has prompted a debate over whether the mandate to boost wages will hurt or help the economy. Some labor analysts say it could put more financial strain on small businesses, forcing some to cut jobs. "The timing of this is not great in the middle of a recession," said John A. Challenger, chief executive of Challenger, Gray & Christmas, a Chicago-based outplacement firm. "Is it better to create more jobs at the lower rate or fewer jobs at the higher rate?"
Others, though, say the raise is badly needed to help low-wage earners, the majority of whom are adults, keep up with rising food, housing and fuel costs. They regard it as a stimulus that could help reduce the growing savings rate and increase consumer spending, which represents two-thirds of the gross domestic product.
The increase "could not have come at a better time," said Heidi Shierholz, an economist at the Economic Policy Institute. But even with it, she said, minimum-wage workers will be paid only $14,500 a year, well below the federal poverty line of $17,346 for a family consisting of an adult and two children.
"This will put $5.5 billion of spending into the economy," she added. "That's not going to solve our problems," but it is "a shot in the arm."
The National Small Business Association is one of the leading opponents of raising the minimum wage, saying it will accelerate the deterioration of members' finances. Three-quarters of its members surveyed this month said the economy is worse, up from 64 percent in December. Nearly half of those surveyed said they lacked confidence in the future of their businesses, up from a third in December. The business owners also reported declines in hiring, revenue and profit.
"Small businesses already have faced employment cuts in the last 12 months -- [and] are projecting more cuts -- and the minimum wage increase will only exacerbate that," association spokeswoman Molly Brogan said. The businesses will "have to make the difficult choice of going under or laying people off."
In a conference call Thursday, Labor Secretary Hilda L. Solis said the 70-cent hourly increase would have a "minimal" effect on employers but a major impact on the workers. They "will be able to pay their utilities, put food on the table and buy school supplies for their children," Solis said, adding that the government will dispatch 250 additional inspectors across the country to ensure that employers comply with the law.