Published: July 23, 2009 11:18 pm      

Minimum wage hike takes effect

70-cent increase will help earners, could hurt employers.

Tobey Goins wants a job, but he doesn’t have one and can’t find one.

As a result, knowing the minimum wage has increased from $6.55 to $7.25 has little affect on the 22-year-old Kokomoan.

“That’s all good,” he said as he walked through the Markland Mall, “but nobody is hiring so what good does it [do for] me? I am not making anything now.”

Today, under the Fair Labor Standard Act, every employer must raise all non-exempt employees’ pay to meet or exceed the increased federal minimum wage of $7.25.

This is the third minimum wage increase since 2007, when the wage was $5.89. Before today’s increase it was $6.55.

The extra 70 cents in pay is needed, said Jeff Pardue, assistant manager of the Sycamore Street Gas America, but he said his 12 employees were already making more than the previous minimum.

“We start them above $7, so we will have to go to the minimum wage,” said Pardue. “I think it’s a good idea the wage is increasing because too many people have to work two jobs just to make it.”

According to Indiana Workforce Development’s latest statistics, in 2008 there were 1.8 million workers being paid an hourly rate. Of that number, 64,000 were earning at or below minimum wage.

But wage earners aren’t the only ones who will be affected by the change. The increase will have an impact on both employers and the economy, said Jerry Conover, director of Indiana Business Research Center at the Indiana University Kelley School of Business.

“How the minimum wage will affect employers and the economy has been debated for more than 20 years. It is a very controversial topic among researchers,” said Conover. “This is the third hike employers have seen, so they have had time to prepare for it. They are not being hit by surprise. Businesses will have to respond with ways to make a profit when they pay workers more, and that’s usually by raising prices.

“The benefit of the increase is now minimum-wage earners will have more money to spend. The 70-cent increase is more than what most people receive, so they will have a little more discretionary income to spend. That income spent in the local community will affect the local economy, and it will have a trickle down effect and boost the local economy.”

Living in the college town of Bloomington, Conover said most minimum-wage earners are working jobs that aren’t designed to “support a family. Usually if there is a minimum-wage earner in the household, they are working part time and there is another full-time earner in the house. A small fraction of households are supported by minimum-wage earners.

“You may have kids working, but they aren’t putting groceries on the table. The single parent minimum-wage earner is more of the exception than the norm.”

According to the U.S. Bureau of Labor Statistics, nationally, the largest group of minimum-wage earners — 25.9 percent — are between 20 to 24 years old, 67.3 percent are female and 57.9 percent have a high-school education or less.

In addition, the top three occupations for minimum-wage earners are food service (52.6 percent), sales — including retail (10.2 percent), and personal care (7.1 percent).

Due to a sluggish economy, with food service being the largest employer of minimum-wage earners, a recent comprehensive index of restaurant activity study by the National Restaurant Association indicates “well over 3 million jobs” will likely be lost this year.

The NRA index looks at the health and outlook of the U.S. restaurant industry — sales, traffic, labor and capital expenditures.

The NRA is the business association for the restaurant industry. It is comprised of more than 945,000 restaurants and food-service outlets, as well as a work force of more than 13 million employees.

Although the job losses are forecasted, NRA spokeswoman Maureen Ryan said no one could have predicted what how bad the economy would be when the wage increases were approved several years ago.

“It is difficult to forecast what the impact of the [minimum wage] increase will be, given the fragile state of the economy,” said Ryan. “But the fact that many restaurants are already seeing their margins squeezed due to sluggish sales, an increase in labor costs will certainly not encourage them to expand staffing levels in the current environment.

“When Congress passed the minimum wage increases back in 2007, they couldn’t have thought that two of the three wage bumps would take place in the midst of the worst economic slump since the Great Depression. But the fact is that during economic downturns, the employment impacts of minimum wage increases are often magnified because it is significantly more difficult for businesses to rehire workers at higher wage rates.”

• K.O. Jackson is the Tribune’s business writer. He can be reached at (765) 854-6739 or via e-mail kirven.jackson@kokomotribune.com