Minimum wage hike could threaten low earners' jobs

DIONNE WALKER
Associated Press
A federal minimum wage increase that takes effect today could prolong the U.S. recession, some economists say, by forcing small businesses to lay off the same workers that the pay hike passed in better times was meant to help.

The increase to $7.25 means 70 cents more an hour for the lowest-paid workers in the 30 states that don't have a higher minimum. It also means higher costs for employers who feel they've already trimmed all their operating fat.

"How will they absorb the increase?" said Rajeev Dhawan, director of Georgia State University's Economic Forecasting Center. "They will either hire less people or they will do less business."

Buck's Pizzas and Wings in Morganton is coming up with creative ways to cut costs to keep all its current employees, owner Jeff Whisnant said.

One idea includes renegotiating the cost of food with suppliers, Whisnant said.

That doesn't mean employees are off the hook.

"I talked to my employees and told them that I will be expecting a little bit more out of them since the wages went up," Whisnant said. "Hopefully we can all work together and try and get through this."

Granny's Kitchen in Connelly Springs isn't planning on relinquishing any of its employees either, owner Kent Cranford said.

But the price of the minimum wage increase is a decrease in hours for some employees, Cranford said. The current economy has already slowed down business enough to have cut hours even before the increase went into effect.

"We're just dealing with it the best we can," Cranford said.

More than in any period before, businesses are likely to lay off employees and reduce hours, further fueling the economic slump in states seeing double-digit unemployment rates, fiscal conservatives and some economists say.

Minimum wage advocates counter the wage bump will keep more working poor afloat, and say more increases are needed to help stimulate consumer spending and strengthen businesses in the long run.

But Labor Secretary Hilda Solis says the increase in the minimum wage will generate an extra $5.5 billion in consumer spending over the next year.

It is the third and final step of a three-year phased increase in the rate.

It's an old policy debate that resurfaced when Congress passed the increase two years ago and has taken on urgency as the nation's fiscal funk has deepened.

In the end, it's the workers and their employers who find themselves caught in the middle.

At Bench Warmers Bar and Grill in the southeast Kansas town of Chanute, owner Cathy Matney has decided to let some of her dishwashers go rather than pay all 22 of her employees more.

"It's bad timing," Matney said, whose waitresses and cooks will have to pitch in with scrubbing pots and pans. "With the economy like this, there's a lot of people who are out of work and this is only going to add to it."

Ryan Arfmann, who owns a Jamba Juice shop in Idaho Falls, Idaho, will be cutting hours to his staff, which is made up largely of college students, high schoolers and homemakers who want to make a few bucks.

"Am I going to fire anybody, no," Arfmann said. "But kids understand there's going to be hours cut."

Arfmann said he wishes the increase was spread out over a few more years, to make it easier for him to absorb the costs. He also is concerned that he'll end up having to give everybody raises just to maintain pay differentials between employees.

Backers of the increase say it's long overdue for millions of America's working poor. Rep. George Miller, a California Democrat, authored the 2007 minimum wage legislation, which increased pay for the first time in a decade.

"A higher minimum wage helps working families' budgets and results in increased spending on local business, which is good for everyone," Miller said in an e-mail.

That's a tough sell to employers of minimum wage workers - from hotels to daycares to burger chains - who find themselves having to cut larger paychecks as their revenues continue to shrink. The effects could be especially harsh in the nine states - Alabama, Florida, Georgia, Indiana, Kentucky, North Carolina, South Carolina, Nevada and Tennessee - where the pay increase coincides with double-digit unemployment.

Fewer workers employed, meanwhile, reduces the amount of money in circulation — dampening any consumer spending spike the wage boost could have created, Dhawan said.

News Herald reporter Julie Chang assisted with this story.