Some minimum wage workers get raise today

Last update: July 24, 2008 - 11:35 AM

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About 2 million Americans get a raise today as the federal minimum wage rises 70 cents. The bad news: Higher gas and food prices are swallowing it up, and some small businesses will pass the cost of the wage increase to consumers.

The increase, from $5.85 to $6.55 per hour, is the second of three annual increases required by a 2007 law.

Next year's boost will bring the federal minimum to $7.25 an hour, giving more than 5 million workers a raise, said Lisa Lynch, dean of the Heller School for Social Policy and Management at Brandeis University in Waltham, Mass.

The increase, however, is "a drop in the bucket compared to the increases in costs, declining labor market and declining household wealth that consumers have experienced in the past year," said Lehman Brothers economist Zach Pandl. The new minimum is less than the inflation-adjusted 1997 level of $7.02, and far below the inflation-adjusted level of $10.06 from 40 years ago, according to a Labor Department inflation calculator.

Last week, the Labor Department reported the fastest inflation since 1991 -- 5 percent for June compared with a year earlier. Energy costs soared nearly 25 percent. The price of food rose more than 5 percent. And the increase could push food prices even higher by raising the pay for agricultural workers, said Brian Bethune, chief U.S. economist at consulting firm Global Insight.

But he said he did not expect the change to have a major impact on the economy because recent increases in productivity, which enables companies to produce more with fewer workers, are keeping labor costs in check. And 23 states -- covering 60 percent of U.S. workers -- have laws making the minimum wage higher than the new federal requirement, said the Economic Policy Institute, a think tank. Minnesota is not included among those states.

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