Impact Of Minimum Wage Hike


Though long-awaited and much discussed, the first increase to the federal minimum wage in 10 years will likely have little effect on the employment world.

The provision, which also includes some corrections and adjustments to the Pension Protection Act of 2006, will increase the federal minimum wage from $5.15 to $7.25 per hour in three separate phases over two years.

Despite the more-than-$2-an-hour increase overall, many states already have higher minimum wages than the federal government.

In addition, many industries already have higher-than-minimum wages just to stay competitive and the legal minimum has actually been falling over the last several years in comparison to the overall wage level.

In short, the increase will benefit an estimated 4 percent to 5 percent of the workforce who earn less than $7.25 an hour, with the vast majority of employees and employers affected being small businesses and those in the restaurant and retail industries.

The increase may have the impact of increasing the lowest-paid jobs in an organization, particularly if they are close to but above the minimum wage. Other jobs that are compared to these close-to-minimum-wage jobs may also be affected as people compare employment opportunities with pay levels.

This creates a ‘ripple effect’, which raises pay for many employees, not just the lowest-paid. Businesses may respond by raising prices, reducing labor hours and changing the mix of part-time and full-time employees. However, these actions must also be balanced by increased turnover, which is costly.

As big a jump as more than $2 seems, it’s really not a huge increase. What could be significant is the level of fear out there that these kinds of increases will get pushed up the ladder into higher-paying jobs. Though that wouldn’t normally be that much to worry about, in today’s environment, with the price of gasoline so high, people just might be more likely to demand higher wages for skilled positions as well as lower-level ones after this.

There is also a prevailing notion that boosting the minimum wage could increase or decrease employment figures. This hike may accelerate the machine-over-people replacement factor, particularly in places such as fast-food restaurants; however, there again, this is likely to be negligible.

What’s more, boosting the minimum wage can actually have positive impacts on employers and employees. A recent study showed states that raised their minimum wages above the federal level performed better than low-wage states in terms of retail-payroll growth and overall employment figures.

Impact or not, positive or negative, the change to the minimum wage has been a long-awaited victory for many Americans across the country.

With changes in state regulation an inevitable part of the future, you may wish to consider investing in a time and attendance system, which automates the process of recording and paying wages to your employees.

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