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Experts expect little impact from minimum wage hike


Wallace Thomas is now paying a handful of his eastern Kentucky sawmill employees 75 cents more per hour under the state’s new minimum wage law.

No big deal, he says.

The tough part will be two years from now when a dozen or so employees now making around $7 an hour realize they’re earning as much as a minimum wage worker.

“It’ll be harder to make someone already making $7 an hour work for the same amount” when the minimum wage reaches $7.25, said Thomas, co-owner of Thomas Brothers Sawmill in Owsley County.

The law, virtually identical to the minimum wage law passed in Congress last month, increases minimum wage from $5.15 to $7.25 in three installments over two years. The first jump, which began Tuesday, raised the wage to $5.85.

Experts say the new minimum wage laws will have little impact on major businesses and on the working poor in Kentucky – the sixth poorest state in the nation.

Small business owners, such as Thomas, who pay their laborers less than $10 an hour, will be most affected, said Michael Jones, a state economist.

About 200,000 Kentucky workers will get a pay raise on Tuesday, according to data compiled by the Governor’s Office for Policy Research.

These workers, who make less than $5.85, make up 8 percent of the work force in Kentucky. Only 8,000 workers actually earn $5.15 an hour.

By 2009, another 150,000 will benefit from the “ripple effect” of raising the wage, according to the Kentucky Raise the Wage Coalition.

Thomas, who jump-started his sawmill business three years ago in the poorest county in Kentucky, is preparing his wallet.

“It may be harder to pay that,” said Thomas, who starts out trainees at $5.15 for stacking lumber and pushing slabs through giant saws.

Jones added that a common misconception is that raising minimum wage is a way “to get back at big business.” However, larger industries, such as fast food and discount retailers won’t be greatly affected because the law allows them plenty of time to adjust payrolls and improve efficiency.

Nationally, the effects of increasing minimum wage on poverty, job growth or inflation have been small, according to a 2007 study from the University of Kentucky Center for Poverty Research.

“To date, the economic evidence for or against an increase in the minimum wage is not overwhelming,” reported James Ziliak, director of the center.

The Raise the Wage Coalition lobbied for the pay hike, saying the working poor can’t afford basic necessities like housing, food and clothing.

“In one sense it’s not a lot of money,” said Ed Monahan, chairman of the coalition. “But in another sense, if you’re a single mother struggling to make ends meet, that little bit of money is going to help you.”

Back at the sawmill, 48-yearold Donald Montgomery, who makes $6 an hour, said the incremental increases are small for his household, which includes a wife disabled by seizures and a 17- year-old who simply needs stuff.

Still, “anything would help, I guess,” he added. “It’s pretty hard sometimes.”

Jones said the wage increase may help thousands of the working poor, but it could cost many their hours or even their jobs.

“As minimum wage goes up, you would expect employers to hire fewer workers,” Jones said. “Instead of hiring three-to-four low skilled workers, you could hire two higher skilled workers.”

By the time minimum wage reaches $7.25 in Kentucky, there will be a job loss of up to 6.4 percent, according to Ken Troske, director of the UK Center for Business and Economic Research.

Troske, who issued a report on minimum wage earlier this year, believes giving the working poor an income tax credit is a better alternative.

An earned income tax credit, like those offered by other states and the federal government, would allow workers who earn less than a certain amount, depending on the size of their household, to reduce their state tax bill or even claim a refund.

Monahan agreed that a tax credit would have a significant impact in helping the working poor.

“I think there’s several pieces of the puzzle to help poor people who are working and struggling,” he said. “One way is increasing minimum wage, the other is a tax credit. That’s the next step to take in Kentucky.”

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