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Jul 24, 2008 4:04 pm US/Central
Minimum Wage Hike Little Help As Costs Soar
FORT WORTH (CBS 11 News/ AP) ―
About 2 million Americans get a raise Thursday as the federal minimum wage rises 70 cents. The bad news: Higher gas and food prices are swallowing it up, and some small businesses will pass the cost of the wage hike to consumers.
The increase, from $5.85 to $6.55 per hour, is 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.
"I figure everybody ought to be making at least $10 an hour because everything's so high," said Alfreda Garrison, a restaurant worker at Smokey's BBQ on East Lancaster in Fort Worth. "Gas, insurance, upkeep of your car, your house… everything's so high!"
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.
The owner Smokie's BBQÂ said she's already paying employees above minimum wage. If she didn't, she said she would not have quality applicants.
"I could not start anybody at minimum wage. There's no way," said Smokey's co-owner Pam Moore. "They wouldn't be able to survive, and at the pay they're at now - which is a little above minimum wage - there's always issues that come up. We help the employees out a little bit too. You know, they need a loan, twenty dollars to get some gas, we'll loan it to them."
Several of the restaurant workers walk to the job to avoid high gas prices.
Quite simply, said restaurant worker Avis Compton, if she made minimum wage, "I wouldn't have a roof over my head."
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.
The increase in the minimum wage could push food prices even higher by rising the pay for agricultural workers, said Brian Bethune, chief U.S. economist at consulting firm Global Insight.
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.
(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
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