Minimum Wage Works Up to $5.15

Millions of Americans are scheduled to get a raise today when the federally mandated minimum wage rises to $5.15 an hour.

In California, the increase is 15 cents an hour, up from the state minimum of $5 an hour.

But across most of the United States, fast-food workers, retail clerks, gas-station attendants and others will be earning 40 cents an hour more when they report to work as the second phase of a federal hike goes into effect.

California and federal wage laws are leapfrogging each other. The federal law, signed a year ago, provided for a minimum wage of $4.75 on Oct. 1, 1996, and $5.15 today. California’s Proposition 210, passed in November, provided for increases to $5 in March of this year and then to $5.75 in March 1998.

A majority of the workers affected are women who work in the low-wage service sector, according to a report to be issued Tuesday by the Economic Policy Institute, a Washington, D.C.-based think tank.

The study found that in 18 states more than 10% of the work force will be affected by the increase.

The debate early last year over whether to raise the minimum wage for the first time in five years focused almost exclusively on whether the increase would lead to layoffs by low-wage employers. But the study found no significant job losses for minimum-wage workers.

“The experience with the 50-cent increase that went into effect for the minimum wage last October refutes the doomsday predictions that opponents have always raised whenever Congress considers a fair increase,” said Sen. Edward Kennedy (D-Mass.), a main proponent of the increase. “But it doesn’t go far enough, which is why I intend in the months ahead to push for legislation to further raise the minimum wage to $7.25 [in 2002].”

To critics who warn that increasing the minimum wage could spark a new round of price increases and inflation, Jared Bernstein, an Economic Policy Institute analyst, said: “It’s a mistake to think that any increase in wages is inflationary and there is substantial room for noninflationary wage growth, particularly at the bottom end of the scale.”

Instead, Bernstein said, the focus should be on “the benefits of higher wages for families that even in this robust economy have still been left behind.”

Although important to the low-wage sector and businesses that employ large numbers of such workers, Labor Department figures show that minimum wage earners make up only 2% of the nation’s hourly workers. And at $5.15, the new minimum wage is only half of the average hourly wage.

Americans are earning more and the ranks of minimum-wage earners are thinning mostly because the unemployment rate stands at a quarter-century low of 4.8%. That means virtually every person who wants a job and is qualified to hold one is employed, analysts say.

“One expects any increase in business costs to have some effect on prices, but in this case it’s going to be very, very small,” said Princeton University economics professor Alan Blinder, a former vice chairman of the Federal Reserve Board. “The best time for something like this to happen is in a tight labor market like the one we have.”

Economists and investors also say they’re not worried about an inflation flare-up because competition prevents companies that employ minimum-wage earners from raising prices.

“When we worry about inflation we forget that businesses remain intent on controlling their costs,” said Alan Day, vice president at the Stratevest Group in Burlington, Vt.