This is an exciting week for the lowest wage earners in the U.S. and teenagers. On Friday, the federal minimum wage rate will jump from $6.55 to $7.25, about a $1,456 increase on an annual basis. Who will it affect? Strikingly few adult full-time workers.
This week's increase is the final bump from Congress' "Fair Minimum Wage Act of 2007," slipped into a bill to provide funding for U.S. troops and Katrina victims in May 2007. There's some debate about how much increasing minimum wage really affects unemployment. I have no intention of picking that up here. If you're interested, Megan wrote a lot about it last year. Given the state of the economy, however, I find it hard to believe that businesses will be cheering this week's increase.
First, let's have a little perspective on Congress's action back in 2007. Prior to the legislation, the minimum wage was a paltry $5.15 per hour. The act pushed it to $5.85 in July 2007, $6.55 per hour in July of 2008 and finally $7.25 this Friday. For those who like percentages, that was a 10% increase in 2007, 16% in 2008 and 11% in 2009 -- or a 41% increase pre-legislation to July 2009. If I were making 41% than I was in May 2007, I would be a very, very happy man. Of course, if that means I was making minimum wage, I would probably not be as happy.
So just who does this affect? The Bureau of Labor Statistics puts out a minimum wage report every year. 2008's report was released last March. According to that, about 286,000 individuals were making minimum wage in 2008, or 0.4% of the workforce. A few more than that will be affected, as the increase would also be a raise for anyone making between current federal minimum wage of $6.55 and $7.24 per hour. Unfortunately neither BLS nor the Census Bureau keeps track of wage distributions, so I could not determine exactly how many people will benefit. But it won't be many.
That BLS report also contains a few more interesting facts about the federal minimum wage earners:
- Approximately half were teenagers.
- Twice as many women as men make minimum wage.
- There was almost no racial discrimination, as all races were recipients of the minimum wage at virtually equal proportions.
The federal minimum wage will also only affect states that don't already have higher state minimum wages. I found this nifty map to explain each state's current rate (pre-Friday) relative to the federal minimum wage rate, over at the Department of Labor's website.
What this chart doesn't show is that a few states fall between the new level and the old level. That means all states affected by Friday's change include: Alabama, Alaska, Arkansas, Delaware, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wisconsin and Wyoming. That's 30 states -- a little more than half. The other 20 states won't notice the change at all.
Because so few workers make less than the new federal minimum wage already, I don't believe it will cause much of a bump in unemployment -- even if you do believe that an increase in minimum wage generally results in lay-offs. With that said, I also doubt the increase will encourage businesses to hire new workers at the minimum wage.