Minimum-wage boost could threaten jobs

ATLANTA (AP) — A federal minimum-wage increase that takes effect today could prolong the recession, some economists say, by forcing small businesses to lay off the same workers that the pay increase passed in better times was meant to help.

The increase to $7.25 means 70 cents more an hour for the lowest-paid workers in the 30 states that have lower minimums or no minimum wage. It also means higher costs for employers who feel they’ve already trimmed all their operating fat.

“How will they absorb the increase?” said Rajeev Dhawan, director of Georgia State University’s Economic Forecasting Center. “They will either hire less people or they will do less business.”

More than in any period before, businesses are likely to lay off employees and reduce hours, further fueling the economic slump in states seeing double-digit unemployment rates, fiscal conservatives and some economists say.

Minimum-wage advocates counter the wage bump will keep more working poor afloat and say more increases are needed to help stimulate consumer spending and strengthen businesses in the long run.

It’s an old policy debate that resurfaced when Congress passed the increase two years ago and has taken on urgency as the nation’s fiscal funk has deepened.

In the end, it’s the workers and their employers who find themselves caught in the middle.

At Bench Warmers Bar and Grill in the southeast Kansas farming town of Chanute, owner Cathy Matney has decided to let some of her dishwashers go rather than pay all 22 of her employees more.

“It’s bad timing,” Matney said, whose waitresses and cooks will have to pitch in with scrubbing pots and pans. “With the economy like this, there’s a lot of people who are out of work, and this is only going to add to it.”

Ryan Arfmann, who owns a Jamba Juice shop in Idaho Falls, Idaho, will be cutting hours to his staff, which is made up largely of college students, high schoolers and homemakers who want to make a few bucks.

“Am I going to fire anybody, no,” Arfmann said. “But kids understand there’s going to be hours cut.”

Arfmann said he wishes the increase was spread out over a few more years, to make it easier for him to absorb the costs. He also is concerned that he’ll end up having to give everybody raises just to maintain pay differentials between employees.

Backers of the increase say it’s long overdue for millions of the nation’s working poor. Rep. George Miller, D-Calif., authored the 2007 minimum-wage legislation, which increased pay for the first time in a decade.

“A higher minimum wage helps working families’ budgets and results in increased spending on local business, which is good for everyone,” Miller said in an e-mail.

That’s a tough sell to employers of minimum-wage workers — from hotels to day cares to burger chains — who find themselves having to cut larger paychecks as their revenues continue to shrink.