WASHINGTON — Retailers are bracing for another financial hit to payroll costs and profits as the last increase in the federal minimum wage rate takes effect today, while advocates maintain it will serve as a big boost to the livelihood of workers, the economy and businesses.
This story first appeared in the July 24, 2009 issue of WWD. Subscribe Today.
The hourly wage rate will increase to $7.25 from $6.55, the third increase in two years, stemming from legislation enacted in 2007. The change will give a boost to workers in 30 states, Washington, D.C., and Puerto Rico, where the state wage rate is currently lower.
Facing mounting bankruptcies and consolidations due to the recession, many retailers, particularly in the teen retail segment, will feel the spike in wage pressure with the increase.
“Heading into the third and final step, especially in this economy, I think there is a little more concern in the broader business community that this will bring additional wage pressure for companies that are working hard to protect the jobs they have,” said Mark Warren, vice president for tax policy at the Retail Industry Leaders Association, which includes such companies as Wal-Mart Stores Inc. and Target Corp. “So that certainly gives us some pause.”
Rob Green, vice president of government and political affairs at the NRF, which includes such chains as Macy’s Inc. and J.C. Penney Co. Inc., said the impact will vary depending on the size and location of a retailer.
“The record shows that labor-intensive industries such as retailers, restaurants and other small businesses are disproportionately impacted by minimum wage increases,” said Green.
Rep. George Miller (D., Calif.), chairman of the House Education & Labor Committee, on a call with reporters, dismissed the argument many in the business community have raised that a minimum wage increase will lead to a decline in hiring.
“The evidence just isn’t solid,” Miller said. “The fact is an increase in the minimum wage will put more money into workers’ pockets and that worker will put more money into the economy with the spending he does. We hear that argument year after year and there are many studies that refute those statements.”
Labor Secretary Hilda Solis, also on the same call, cited a study conducted by the Economic Policy Institute, a nonpartisan think tank, that estimated an increase in the wage rate would generate $5.5 billion in consumer spending over the next year.
She also said her agency will hire an additional 250 wage and hour inspectors, bringing the total to roughly 900, to police minimum wage and overtime violations across the country. The agency collected $82 million in back wages owed to 107,000 workers in the first half of the year and plans to step up enforcement with the new investigators, Solis said.
“This will give us an opportunity to do more targeted enforcement,” said Solis. “Hopefully, we can work with those employers to prevent those kinds of abuses.”