‘Hopefully a living wage’

By Jessica Legge
Times West Virginian

FAIRMONT September 09, 2007 01:34 am

— As minimum wage continues to go up in West Virginia, experts have differing thoughts about the economic impact it may have on the state.
In West Virginia, the minimum wage increase is being staggered over three years. In July 2006, the pay jumped from $5.15 to $5.85 per hour, and it went up to $6.55 this summer. In July 2008, the state will see the final 70-cent increase, which will bring the minimum wage to $7.25, Delegate Doug Stalnaker said. Stalnaker (D-38th District) is from Lewis county.
West Virginia’s minimum wage for covered, nonexempt employees is higher than the federal minimum wage. Some states don’t have minimum wage laws and abide completely by the federal regulations.
The federal minimum wage is a year behind West Virginia’s rate. The federal pay is currently $5.85 an hour and will increase to $6.55 in July 2008 and $7.25 in July 2009.
“We felt we needed to take a step in the right direction and give everyone hopefully a living wage,” Stalnaker said of the state wage hike.
Many businesses that are exempt from the minimum wage increase raised their pay anyway to give workers a living wage. An increase in minimum wage cuts into a business’ profit margin, which could especially affect small businesses, he said.
“The prices go up to reflect the increase in minimum wage,” Stalnaker said. “So many businesses work on a small percentage of profit; I’m sure they’ll have to adjust their prices to accommodate the increase.”
He said it’s too early to determine the economic impact of the recent wage hike on West Virginia, but hopefully it will put more money in people’s pockets and in turn generate more revenue for the state.
Delegate Tim Manchin (D-43rd District) said the state minimum wage increase was necessary because the federal government wasn’t making any strides on the topic at the time. West Virginia’s House Bill 4023 was passed in early 2006, and other states had already started raising their minimum wage.
“If you’re working full time, it’s supposed to keep you out of poverty, not in it,” Manchin said. “The minimum wage at that point was below the poverty level.”
The West Virginia legislation affects all state workers, he said. Companies engaged in interstate commerce that are under federal minimum wage are exempt.
Manchin said he’s heard from many grateful state workers and other employees who are really appreciative of the minimum wage increase. He expects the higher minimum wage to give West Virginia business a positive boost and put more money back into the economy.
“If you believe in a minimum wage, then it has to be a fair minimum wage,” Manchin said. “I think that the efforts (of) the state and the federal government are an attempt to get closer to fairness than we have in the past, and I’m pleased to see it because our people have certainly needed it.”
Kent Sowards, director of Data and Survey Services for the Marshall University Center for Business and Economic Research, said the minimum wage debate is generally very political.
When looking at economic theory, minimum wage is a wage floor and an increase encourages many people to re-enter the workforce and strengthens work ethic, he said. Minimum wage is intended to help the working poor or those in poverty.
Firms tend to be profit maximizers, and whenever there’s an increase in costs — such as workers’ pay — companies find other ways to reduce expenses. Sometimes businesses give workers fewer hours or decide to employ fewer people. A person’s value to the firm is sometimes assessed.
While “mega-firms” that fall under the minimum wage laws have the ability to adjust costs, smaller firms often have less flexibility, Sowards said.
Studies have been conducted that focus on the increase of minimum wage at the national level or for certain industries, but research is not readily available on the impact West Virginia has seen, Sowards said.
Workers who receive minimum wage may end up spending much of their paychecks just to get by. As the price of goods and services go up, this “effectively erodes” any gains made through an increased minimum wage, he said. People who make a little bit above the minimum wage also have to pay the same increases in costs.
“A lot of times the low wage earners tend to be young or students who work part-time,” Sowards said. “The low wage workers who are older seem to be above the minimum wage.”
While these young persons normally see increases in pay as they obtain more education, the older workers don’t have as many opportunities to raise their salary, he said. An increase in minimum wage may encourage young people to immediately enter the work force to earn what they feel is a more significant wage instead of going to school.
“I think partially you see this call to help combat the increases in costs that impact low (wage) workers a bit more disproportionately,” Sowards said. “Even though it’s designed to help the working poor, it doesn’t help everyone equally.”
The West Virginia legislation includes many exemptions, such as the size of the firm and the industries that are covered.
Tip-dependent restaurant workers, for example, are not included, but these employees still have to buy the same goods and services at increased prices. Sowards said these workers will see the minimum wage increase impact their consumption more than their earnings.
The federal and state minimum wages are completely “different animals,” said Dr. Russell Sobel, James Clark Coffman Distinguished Chair in Entrepreneurial Studies at West Virginia University and professor of economics.
The federal wage applies to all states and increases everywhere. When one state raises its wage above another state, however, it creates incentives for firms to open in the state with the lower minimum wage.
“I don’t think it’s a good thing for West Virginia to have a minimum wage higher than the federal wage,” he said. “The best-case scenario would be if the federal was raised above the state. The last thing you want to do to the economy is make our labor more expensive than firms in other states.”
He said college students and young people are often in the minimum wage category. Persons get more income as a result, but a lot of the people who need help aren’t working at the minimum wage level. Many of the individuals who need assistance either aren’t working at all or have jobs that pay slighter higher than the minimum wage.
Sobel said many businesses are exempt from the minimum wage in an effort to avoid potential negative impacts.
“Still, the effect is going to be we’re going to be chasing away jobs,” he said. “We’re going to lose some jobs — there’s no question of that. It’s very unlikely that this is going to make a huge difference in poverty.”
Sobel said the minimum wage increase has the potential to hit small businesses a lot harder than larger companies. A big firm may be able to buffer the dollar amount easier, but a smaller entrepreneur may have to raise prices for consumers. In turn, the low income people will take a hit.
“Most economists say there’s some benefits to the minimum wage,” Sobel said. “We think there’s better ways to (provide aid) without messing up this market.”
Dr. Tom Witt, director of the Bureau of Business and Economic Research at WVU and professor of economics, said there are a number of pros and cons behind the minimum wage.
“The best time to increase minimum wages is when you’re in an economy (that) is expanding because jobs are being created,” he said. “That turnover in the labor market is reflective of the fact that we have at the present time a lot of economic opportunity.”
With West Virginia’s low labor participation rate, an increased minimum wage may induce some state residents to enter the labor market. On the other hand, some workers may lose their jobs if companies decide to employ less workers, Witt said.
Small businesses are generally impacted more by increases in minimum wage. Some companies may keep the same amount of employees but reduce fringe benefits. Witt said the effect of the minimum wage increase will become more apparent as the hike continues to be phased in.
“There may be some small businesses that may be adversely affected and may have to change their hiring over time,” he said. “It’s hard to say how different firms will adjust.”
E-mail Jessica Legge at jlegge@timeswv.com.

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