Professor: Minimum-wage hike will hurt consumers

Published 7:54 am Friday, July 17, 2009

SUFFOLK—Next Friday, the minimum wage will increase from $6.55 per hour to $7.25 per hour, the final installment of a three-part increase that began in 2007. In 2007, the minimum wage was $5.15 per hour.

While some may see higher wages for workers as an answer to the today’s poor economic state, there are others who say this increase will simply further the country’s recession.

“You keep increasing the minimum wage, and it’s just going to be exacerbating the problem,” said David Lydick, professor of business management for Paul D. Camp Community College. “Whenever you have more money coming in on wages, you’re going to have folks who take advantage of it.”

Lydick said that while people will have more money to spend, business and industry leaders are also aware of the pay increases and will adjust their prices accordingly to make more profit.

“The businesses go, ‘Hmm, if the general population gets a 5 percent increase, we can just raise our prices 4 percent or 3 percent to take advantage,’” Lydick said. “That’s just the way business is. Generally, businesses aren’t out there to give us a break.” He went on to say people should be on the lookout for a rise in prices on everything from clothing to groceries.

The simple math of the increase shows that a person working 52 40-hour work weeks would make $15,080 before taxes, up from $13,624 currently.

“For most people, it’s not going to be enough,” Lydick said.

But even with the predictions of businesses raising their prices, there are other experts who say the economy will still see a boost thanks to the wage increases.

“Raising wages doesn’t hurt the economy as much as you think it would,” said William Mezger, chief economist for Virginia Employment Commission’s Economic Information Services Division.

Mezger estimated that 500,000 workers in Virginia will be affected by the increase. He added that Hampton Roads has about a quarter of the state’s population but higher wages than more rural areas in the state. About 100,000 Hampton Roads workers will see increases.

Mezger said the number of minimum-wage workers has increased in the past two years, but that is because of both the wage increases and the past year’s recession keeping wages down.

“It’s a little bit higher,” Mezger said. “There were always relatively few people in minimum-wage jobs in Virginia.”

Mezger said those 100,000 workers are now armed with more money to spend.

“It goes right back into the economy,” Mezger said. “Minimum-wage workers usually spend the increase right back at the same type of establishments that they work at. It puts a little more boost in the economy, and you have seen that in the last two years in July.”

While the increases may help in the short term, Lydick still maintains that businesses — specifically small businesses — will have to make cuts to make it through the long term.

“I think it’s going to be potentially devastating to small businesses,” he said. “What’s going to happen to the small-business people is the minimum wage will price them to the point where they won’t be able to hire full-time people. They will have to rely on part-time help.”

Lydick said until the country begins to develop skilled, high-tech jobs, there are not a lot of positive options.

“As long as we have an economy that is severely in debt, there aren’t many economic packages that are going to work,” he said. “At best, for most people, this increase will be basically meaningless.”