Inflation has eroded national minimum wage

WASHINGTON – The last time the federal minimum wage went up was in 1997.

That’s the longest stretch without an increase since the minimum wage was established in 1938. Inflation has eroded the minimum wage’s buying power to the lowest level in about 50 years.

Organized labor and other supporters of boosting the current minimum wage of $5.15 per hour contend it will help the working poor. Business groups and other opponents counter that it could lead to higher prices for goods and services or force companies, especially smaller ones, to pink-slip some entry-level, low-skilled workers or hire fewer such workers. Companies’ profits also could be crimped.

People who are paid the minimum wage tend to be young — under age 25 — never married, more likely to be a woman, a minority and work part time, according to a recent analysis of 2005 data by the Labor Department.

Workers making minimum wage tend to be in the service sector, especially food preparation, bars and restaurants and other food services as well as in the leisure and hospitality industry, the analysis said. Minimum wage workers also can be found on janitorial, landscaping and maintenance crews, at beauty shops, retail stores and elsewhere.

Some opponents say teenagers would mostly benefit from a boost in the minimum wage; supporters disagree. If the federal wage does rise in a few years to $7.25 an hour, about 5.6 million people — 4 percent of the workforce — who make less than this would be directly affected, according to the Economic Policy Institute, a liberal-leaning group. But millions more would benefit indirectly as raising the floor would ripple through the work force, the group says.

That means higher payroll costs for employers. “Every dollar that goes to a minimum wage worker comes out of the customer’s pocket or the employer’s pocket. It is not magic money,” says Bill Dunkelberg, chief economist for the National Federation of Independent Business, which opposes a federal increase.

Brendan Flanagan, vice president of federal relations at the National Restaurant Association, says that his industry cut 146,000 jobs and postponed plans to hire another 106,000 after the last federal boost almost 10 years ago. Another increase would produce a similar impact, he predicted.

“The people who advocate for this, treat it as if it is found money and it doesn’t have any costs,” says Marc Freedman, director of labor policy at the U.S. Chamber of Commerce.