Minimum-Wage Hike May Cost More Than It's Worth

The recent minimum wage increase probably sounds great to the 13 million workers (10% of the workforce) affected, but the reality might not be as rosy for many of them. For some, it could even lead to job losses and reduced work hours.

The second of a series of three minimum wage increases totaling $2.10 took effect on July 24 as part of Congress' Fair Minimum Wage Act of 2007. In 2007, the federal wage minimum was increased to $5.85, this year to $6.55; and in July 2009, it will be raised to $7.25.

But to some business pundits, a salary raise mandated by the federal government, intended to help bring workers' income above the poverty line, will backfire. Thousands of young workers or mentally handicapped persons who depend on the unskilled, low wage, entry-level work, will lose their jobs, many believe.

"It's never good to have government set the salaries for a company," warns William C. Dunkelberg, chief economist for the National Federation of Independent Business.

He explains: "You are raising wages, but you don't get more output, the employee doesn't work any harder and it doesn't add value," said Dunkelberg, adding that for the small business owner who has 20 employees, he or she will likely be required to adjust the pay structure upward for every employee. "The cost adds up, and it will either be passed on to the consumer, to the business itself, or result in letting go of the same minimum wage employee it was meant to help."