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Will wage hike affect businesses?

New pay increase may be passed to consumer

POSTED: July 28, 2008 5:00 a.m.

Today’s 70 cent hike in the federal minimum wage may largely go unnoticed in Hall County.

The hourly minimum goes from $5.85 to $6.55 today in the second of three annual increases required by a 2007 law. Next year’s boost will bring the federal minimum to $7.25 an hour.

Kit Dunlap, president and chief executive of the Greater Hall Chamber of Commerce said that the market has pushed wages above the minimum.

"The only place we are seeing the minimum is in selected entry level jobs," Dunlap said.

A 2007 report from the Bureau of Labor Statistics showed that only 11,000 of Georgia’s 2.2 million work force is paid minimum wage.

Melvin Cooper, director of the city of Gainesville’s recreation department, said that people hired for summer jobs such as day camp counselors and lifeguards at pools are paid above the minimum.

"We have to compete with outside businesses for our workers and have to pay enough to get quality workers," Cooper said.

But the boost in the minimum wage could place some pressure on overall wages, according to one economist.

Roger Tutterow of Mercer University said there are only a few jobs in retailing and hospitality where the minimum is paid for starting workers.

"In places where the labor market has been tight, the market clearing wage is above the minimum wage," Tutterow said. "But when minimum wage goes up, it may cause some wage compression to put pressure on employers to raise the wages of people who are above, but close to minimum wage."

Tutterow said that some organized labor contracts are also tied to increases in the minimum wage.

While the news may be good for the nation’s lowest wage earners, the bad news is higher gas and food prices are swallowing it up, and some small businesses will pass the cost of the wage hike to consumers.

Last week, the Labor Department reported the fastest inflation since 1991 — 5 percent for June compared with a year earlier. Energy costs soared nearly 25 percent. The price of food rose more than 5 percent.

So the minimum wage hike is "a drop in the bucket compared to the increases in costs, declining labor market, and declining household wealth that consumers have experienced in the past year," Lehman Brothers economist Zach Pandl said.

The new minimum is less than the inflation-adjusted 1997 level of $7.02, and far below the inflation-adjusted level of $10.06 from 40 years ago, according to a Labor Department inflation calculator.

Twenty-three states and the District of Columbia have laws making the minimum wage higher than the new federal requirement, a group covering 60 percent of U.S. workers, according to the Economic Policy Institute, a think tank.

When the minimum rises again next year, catching up with more states, more than 5 million workers will get a raise, said Lisa Lynch, dean of the Heller School for Social Policy and Management at Brandeis University.

Some small businesses are already making plans to raise prices to offset the higher wages they have to pay their workers.

The increase in the minimum wage could push food prices even higher by raising the pay for agricultural workers, said Brian Bethune, chief U.S. economist at Global Insight consulting firm.

But he said he did not expect the change to have a major impact on the economy because recent increases in productivity, which enables companies to produce more with fewer workers, are keeping labor costs in check.

That makes it unlikely the minimum wage increase will trigger a "wage-price spiral," in which workers facing higher costs demand more pay, which in turn causes companies to raise prices higher, sending inflation coursing through the economy.

And most businesses, even restaurants and other service sector companies, already pay above the minimum wage anyway. Dan Whitaker, general manager at Anis Bistro in Atlanta, a casual French restaurant, said employees earn at least $8 an hour.

"You can’t get a dishwasher for minimum wage," he said.

The Associated Press contributed to this report.



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