The Impact of the Minimum Wage Increase

Current Minimum Wage

The current minimum wage, adopted by the Federal government to go into effect on July 24, 2009, is $7.25 per hour. A number of states require a higher minimum wage, so if you are an employer, you might want to check the state minimum wages for this year to make sure that you pay employees appropriately.

If there is a difference between the state and Federal required minimum wage, you must pay the higher of the two.

Historical, Background, and Context

The increase in the federal minimum wage on July 24, 2008, from $5.85 to $6.55 an hour, had minimal impact on many employers nation-wide. According to the CCH Internet Research Network, part of Wolters Kluwer Law & Business, many states have already established minimum wage levels higher than the new federal level.

Take a look to see your state's minimum wage and the impact of the increased federal minimum wage legislation, if any, on your organization.

This federal minimum wage increase in was the second part of a three-step increase created by House Resolution 2206 on May 25, 2007. This legislation amended the Fair Labor Standards Act of 1938 to require an increase in the minimum wage from $5.15 to $5.85 per hour in July 2007, to $6.55 per hour in July 2008, and to $7.25 per hour on July 24, 2009. It was the first increase in the federal minimum wage in a decade.

With changed economic conditions in 2009, it is worth noting that the two earlier increases affected some employers, but not many. Research by the Heritage Foundation concludes that this current increase is significant and will significantly keep employers from hiring low skilled employees, a huge blow in the middle of a high unemployment recession.

CCH, which has been reporting on federal wage and hour law since the enactment of the first federal minimum wage in 1938, reports this history of the concept of a minimum wage.

The Minimum Wage Historically

States began to pass minimum wage laws early in the 1900s, often as a way to protect female employees. The U.S. Supreme Court overturned these laws, and a federal attempt to fix wages, until the mid-1930s. In 1937, the Court upheld a Washington law that mandated a minimum wage for working women. Then, Congress passed a federal minimum wage of 25 cents an hour as part of the Fair Labor Standards Act (FLSA) in 1938. This legislation was upheld as constitutional in 1941.

Additional hikes in the federal minimum wage have occurred on the schedule presented in this minimum wage hike timeline.

Projected Impact of the Raised Minimum Wage on States

The Economic Policy Institute predicts: "This bill will provide a wage boost for 12.5 million workers." To see the impact on your state minimum wage, the Economic Policy Institute provides a state-by-state projection of the required minimum wage by date, from May 25, 2007 to July 24, 2009, on this chart.

When State and Federal Wage Rates Are Different

When state and federal minimum wage rates are different, the higher rate, whether state or federal, is paid to employees.

According to a CCH (Wolters Kluwer Law & Business) press release:

  • "Alabama, Louisiana, Mississippi, South Carolina and Tennessee do not have state minimum wage laws, so employers must pay the federal rate to employees who are subject to the FLSA;
  • "In Georgia, Kansas, New Mexico, Utah and Wyoming, the state minimum wage rates are lower than the revised federal rate, so employers must pay the federal rate to employees who are subject to the FLSA.
  • "In Idaho, Indiana, New Hampshire, North Dakota, Oklahoma, South Dakota, Texas and Virginia, the state rates are tied to the federal rate and will automatically increase.
  • "The remaining states and the District of Columbia have minimum wage rates that will equal or exceed the federal rate on July 24, 2007. Employers in these states must continue to pay the state rate as long as it remains higher than the federal rate. In Minnesota, Montana and Nevada, some employers currently paying a state-authorized lower minimum wage based on their size or offering benefits will be affected by the federal increase."

Employer Reaction to Federal Minimum Wage Hike

The impact in most businesses will be minimal due to the fact that many states already have higher minimum wages than the new federal legislation mandates, and many businesses have already raised wages to attract good employees.

According to the Baltimore Sun story: "A PNC Economic Outlook survey done in April showed that three out of four small- and middle-market business owners said raising the minimum wage would have little or no impact on their businesses. 'In a tighter labor market, they already raised wages to be competitive,' said Stuart Hoffman, chief economist for PNC Financial Services Group."

Additionally, according to a SurePayroll survey of 18,000 small businesses, quoted in the Small Business Informer:

"the majority of small businesses (51 percent) don't even know what the minimum wage is in their state."

"Of the small business owners surveyed by SurePayroll, only 3 percent pay the national minimum wage to some of their employees. Only 6 percent of the respondents pay a state-mandated minimum wage to some of their employees. The remaining respondents (91 percent) are not affected by minimum wage laws because they pay all of their employees more than the minimum wage."

On the flip side: according to the Baltimore Sun:

"But at the same time, employers who pay many of these low-wage workers say increasing the minimum wage only means they have to raise the prices of the products, cut back on employees' hours or let some workers go."

In one example, the National Restaurant Association said that:

"...the last minimum-wage increase cost the restaurant industry more than 146,000 jobs, and restaurant owners put off plans to hire an additional 106,000 employees."

In summary, the impact on the business of the federally mandated minimum wage increases appears to be minimal. Although some businesses anticipate cutting back employee hours, hiring fewer employees, and raising the price of products, most already pay more than the federal minimum wage.

The impact of the federally mandated minimum wage increases for employees, while helpful, also appears to be minimal. But, that's a topic for another day.