Federal wage hike could affect unemployment

July 13, 2009

Some minimum wage workers will get a pay bump next week. The federal minimum wage increases July 24 to $7.25. The wage hike marks the final increase in a three-step boost Congress enacted two years ago. This raise will affect 29 states where minimum wages is currently set below $7.25. At $8, Illinois minimum wage is already above the wage floor. How might a federal minimum wage hike affect unemployment numbers? Chief economist for Moody's Investors Service John Lonski said the job market might not be able to accommodate the mandate. Advocates in favor of the increase like Matt Goldberg, a staff attorney at the Legal Aid Center-Employment Law Center, say the raise could decrease dependence on government assistance. The Wall Street Journal considers the minimum wage hike a poor choice with unemployment at 9.5%. An editorial sites a 2006 National Bureau of Economic Research paper to explain why it might not be the best idea. Economists David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve Bank came up with two conclusions:
First, "a sizable majority of the studies give a relatively consistent (though not always statistically significant) indication of negative employment effects." Second, "studies that focus on the least-skilled groups [i.e., teens, and welfare moms] provide relatively overwhelming evidence of stronger disemployment effects."
The WSJ editorial suggests postponing the wage hike a year or two until the economy recovers. Forbes Magazine says a pay increase affects a relatively small portion of the labor force -- about 3 percent -- and because of high unemployment; the pay raise will have little effect on the overall economy. So what do you think? We want to hear from you. Join the discussion in our comment section and tell us your thoughts on the increase.