Min Wage Increase May Have Mixed Financial Impact

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One of the issues Congress expects to wrestle with in its lame duck session this week is the possibility of a minimum wage increase. Even though an increase in the minimum wage by $1 to $6.15/hour would help entry-level employees, the increase--occurring over a two-year period--may have limited impact on wages paid by most companies.

A tight labor market coupled with the higher wages already being received by most employees should result in little change to the bottom line for employers. Many employers who would normally be forced to grant a raise in pay will not experience any increase because young and recently-hired employees are already paid more money due to the shortage of qualified workers in the workforce.

The outlook isn't as rosy in some parts of the country (the south, where wages tend to be lower), and some employers who hire high numbers of young staff will be hit significantly by the increase. Take Domino's Pizza, for example, which estimates it has 20,000 entry-level, minimum wage employees. If the increase in the minimum wage is passed, the company may be forced to lay-off employees or raise prices to make up for the difference.

Another concern of companies is a ripple effect resulting from a minimum wage increase. If employees at the lower end of the pay scale receive increases, similar increases may have to be offered throughout the company to achieve parity among the ranks of all employees.

In the end, of course, the consumer will bear the burden of the increase, as companies pass additional costs on to the public in the form of higher prices for their products and services.

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