Minimum wage set to increase today

The federal minimum wage is rising again Thursday, going from $5.85 an hour to $6.55.

The increase is part of a two-year plan enacted in July 2007 after Congress passed the Fair Minimum Wage Act of 2007. Before this act was passed, minimum wage hadn’t been increased for about a decade, said Katie Moreau, press secretary for Congressman Baron Hill, D-9th. Hill voted in favor of the act.

“About 354,000 people in Indiana currently make minimum wage, so it’s a sizeable increase,” she said. “Some extra is a necessity at this point.”

This is the second phase in the process. By July 24, 2009, the new minimum wage set by the act will be $7.25 an hour.

“I think this will have a positive impact on Indiana’s economy because it will put more dollars in the pockets of Hoosiers who really need it right now,” said State Senator Vi Simpson, D-40.

Currently, the state is enduring some hardships economically. The state’s unemployment rate jumped half a percent, from 5.3 percent in May to 5.8 in June according to the Bureau of Labor Statistics. Simpson attributes this to a major loss of manufacturing jobs in Indiana.

“The only things sustaining Indiana’s economy are small businesses and the service industry at this point in time,” she said.

While hopes are high that the raise in minimum wage will help stimulate the economy, small businesses may still feel the pinch of the increase in their own budgets.
Mike Moy, manager of Bloomington Sandwich Company, can already tell the raise has affected his business.

“It’s going to affect you because you’re paying more for the sandwich,” Moy said. “Food costs in itself are going up, but minimum wage is going up, too. It’s like a double whammy.”

Ray McConn, owner of Mother Bear’s Pizza, is also seeing the rise in minimum wage hit his business.

“We have no alternative but to raise prices,” he said.

The business will be raising prices on its menu between 3 and 5 percent. McConn also estimates the new wage rate will cost his business about $40,000 annually.

“It’s a very expensive proposition for a small business. It’s very expensive. You don’t have this big surplus of money hanging around you,” he said.

In addition to the effect of the raise on small businesses, Marty Donnelly, regional director of the Small Business Development Center, isn’t sure how much this will do to help the economy.

“Many jobs are already paying more than minimum wage, and those that are not are marginal to begin with,” Donnelly said. “Small businesses are likely to pass the increase in cost along to their customers.”

The unpredictability of the economy is another problem.

“I don’t know what the inflation rate is going to be next year, I don’t think anyone does,” Simpson said. “I think we are in for a couple years of very difficult revenue strains ... Most economists agree we’re going into a very serious recession.”

Indiana is one of 10 states with the minimum wage set at the same as the federal regulation, according to the U.S. Department of Labor. Thirty-two states have set their minimum wage above the federal regulation, and eight states have minimum wage below the federal level or have no minimum-wage law.

“Minimum wage, while in some parts of the country it’s a needed situation, in other ways its inflationary and to a certain degree counterproductive,” McConn said.