BusinessReport.com

Congress raised the minimum wage for the first time in 10 years this summer. Whether that’s good or bad might depend on your personal politics, but it hasn’t had a huge impact in Baton Rouge.

“The minimum wage in this particular area is a thing of the past,” says Don Senft, vice president of operations for American General Investments, which owns 54 Cracker Barrel convenience stores, mostly in Baton Rouge and Lafayette. Senft says when the federal minimum went from $5.15 to $5.85 an hour on July 24, his company only had to bump up three workers out of hundreds.

“We always try to be at the market or better than the market (with employee wages),” he says. But in the current local market, the demand for workers is so great and the supply so scarce that just paying the minimum isn’t going to attract the people you need, even in businesses that employ a lot of low-skilled or inexperienced workers.

The minimum wage isn’t indexed to inflation, so its buying power erodes over time and only increases when Congress and the president say it should. President Bush signed the most recent increase in May, along with several tax breaks politicians said would soften the impact for affected businesses.

The last increase was for 90 cents, phased in during 1996 and 1997. The 10-year gap between increases is the longest since the minimum wage was first established at 25 cents in 1938. The new legislation increases the wage 70 cents each summer until 2009, when it reaches $7.25. Most states already had a minimum wage higher than $5.15. Certain types of workers are exempt from minimum wage laws, such as waiters or pizza delivery guys who (theoretically) make tips.

Senft says the $7.25 wage could possibly have more of a local impact, although there’s obviously no way to know what the local labor market will look like then.

John Valluzzo is president of Valluzzo Management, which runs 54 McDonald’s franchises, mostly in the Baton Rouge area. He says his company might still hire at the minimum in some cases, but workers tend to get a raise fairly quickly, so the higher floor doesn’t make a huge difference. However, once the wage gets to $7.25, it might cause him to hire fewer workers, he says; more likely, the prices might come up a bit.

“Costs have to be passed on,” Valluzzo says. “Wages are one more cost of production.” Still, the difference would likely be too small for the average customer to notice, he says.

Jon Fels, a local hotelier and consultant and the publisher of the Fels Hotel Report, says higher minimum wages could eventually lead to more than a 5% increase in room rates.

Fels described the “ripple effect” that happens when the minimum wage goes up, even if no one in an organization is right at the minimum. Someone who’s making, say, $2 above the minimum, will see the minimum come up a dollar or so and expect a comparable raise, he says. A business owner might have to give out some unplanned raises just to keep everyone happy.

LSU economist Loren Scott says the higher minimum wage will have “almost no impact. There’s such a shortage of workers right now, employers have to pay above the minimum to get people to go to work.”

In past years, however, raising the minimum wage has eliminated a lot of jobs, mainly in the South, and especially among teenagers and minorities, he says. The argument against raising the minimum wage is straightforward: when something costs more, including labor, people buy less of it. Free market enthusiasts have long said the government shouldn’t set a wage minimum at all, preferring to let supply and demand determine labor costs.

Minimum wage proponents typically argue raising the minimum wage helps the poor. Scott says along with the do-gooders, two special interest groups typically push minimum wage hikes: northern manufacturers, who want to force their southern counterparts to spend more for competitive reasons, and unions, who enjoy the ripple effect the higher minimum has on their own pay.

On the other end of the political spectrum, the Economic Policy Institute, a Washington-based liberal think tank, says its own research shows the increases in the late 1990s had exactly the intended effect: raising the buying power of low-income workers without leading to job losses.

Others argue the higher minimum wage helps small businesses by creating happier, more productive employees and putting more money in many of their customers’ pockets. The CEOs of Costco Wholesale Corporation, Addus HealthCare, the U.S. Women’s Chamber of Commerce, Small Business Majority, and numerous small and large businesses across the country support the higher minimum wage, according to businessforafairminimumwage.org.

According to the federal Bureau of Labor Statistics, only about 12,000 Louisiana residents worked at the minimum wage in 2006. That’s out of an hourly-rate work force of close to a million and total employment approaching 2 million. Of 409,000 Americans who worked for the minimum last year, more than 45% were in the South, the bureau says.