Federal Minimum Wage Increase First in A Decade

Congress Votes to Increase Federal Minimum Wage

Posted on 31-May-07 by The Timekeeper

In spite of heavy lobbying by a number of business interests, Congress has approved the first increase in the Federal minimum wage in over a decade. The measure passed the House by a vote of 348 to 73. The Senate voted in favor, 80 to 14. In both chambers, the minimum wage increase was combined with bills related to spending for the war in Iraq.

President Bush signed the measure into law on Friday, May 25, 2007.

The measure raises the Federal minimum wage in stages over two years from its current rate of $5.15 an hour to $7.25 an hour. The last increase in the Federal minimum wage was signed into law by President Bill Clinton in 1997.

There’s some question as to just how much of a difference this measure will make in the wages workers actually earn. Twenty-nine states mandate minimum wages that are higher than the current Federal minimum. Seven of those states already have minimum wages levels higher than $7.25 an hour.

Despite that, the Economic Policy Group estimates that four percent of the work force, or 5.6 million people, earn less than $7.25 an hour today.

There’s also some question as to what, exactly, the effect of raising the minimum wage is. Liberals point out that people can’t spend money they don’t have — workers with more money in their pocket will in theory spend more money, which should, in turn, stimulate the local economy, thus helping small businesses. Conservatives argue that raising the minimum wage causes businesses to hire fewer workers so an increase in the minimum wage actually harms lower-income workers by making it harder for them to find jobs. Economists have generally been unable to agree on which point of view is correct.

Interestingly, an article in the New York Times in January (view abstract) compares the condition of actual small businesses in Washington state (which has the highest state minimum wage in the country) and neighboring Idaho (which has the lowest). Turns out that businesses in Washington state “prosper,” while those in Idaho “languish.”

It sure will be interesting over the next few years to see what impact, if any, this increase in the Federal minimum wage has. Will it affect you, or does your state already mandate a higher minimum?