Federal Minimum Wage Increase

Effective today the federal minimum wage has increased to $5.85 per hour.

This is the first increase to the federal minimum wage since September 1997 and ends the longest period without a federal minimum wage increase since being enacted in 1938.

In May of this year, President Bush signed legislation that will increase the federal minimum wage by $0.70 each year until 2009. In 2009 all minimum wage jobs will be required to pay no less than $7.25 per hour.

While this increase will likely be good news to many teenagers and adults working part-time jobs, I’m not so sure how much it will help the working poor. A person working 40 hours per week at minimum wage will see an increase of roughly $1,400 per year before taxes.

In the end, an increase is an increase and it is a good thing to see from a worker’s perspective. Smaller businesses might have a different opinion as it will now cost them more to staff their business, although there is also a $4.84 billion dollar tax relief for small businesses included in this legislation to help hire new workers and offset the increase in the federal minimum wage.

For those currently earning minimum wage, I hope you enjoy the increase in your paycheck and have the ability to set some of the increase aside for long-term savings!

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8 Responses

  1. Your last paragraph is right on. While those working in low paying jobs need every dollar they can get, allocating a portion of an increase before it has a chance to be “absorbed” by all of life’s demands really is the best opportunity.

    • mnc says:

      Absolutely, I’ve posted numerous times about the importance of creating an automatic savings plan. Even if it is just $5-10 per week (or even month) it is important to get in the habit of saving and doing so before you give yourself the opportunity to spend the money.

  2. bill says:

    Out of site, out of mind. If it’s deducted before you receive your check, you really don’t miss it.

  3. The problem with an increase like this is what the cost of things go up even more than the minimum wage.

    For instance it is proven that those that eat at Fast Food predominately make less than $35000 a year. So these are wokers that are not making a lot are the one’s spending the money at Fast Food.

    The same Fast Food place raises their cost of what they sell far more than is justified to meet the minimum wage increase.

    So in the end it hurts those that make less when the minimum wage increases. The idea of a minimum wage increase sounds good but only hurts those it is designed to help.

  4. …Too bad it won’t result in a mandatory pay raise for everyone who reads PF blogs…

  5. Sara says:

    I agree with everything you say and I’m grateful that the wage has been increased. But let’s be realistic, can anyone really live off of $5.85 an hour?

    • mnc says:

      It would be awfully difficult in my opinion but that isn’t to say there aren’t people doing it.

      The great majority of people earning minimum wage are teenagers and young adults. Many of them still live at home with their parents so they can make do with a lower wage.

      It would be very difficult to raise a family making that money though. Even a single person or a couple would have to live very frugally to make it on minimum wage.

      Thankfully I am in a position where my family and I do not have to live that struggle, although my wife and I lived a handful of years before we had kids making peanuts and eating ramen.

  6. You know, now that I think about this a bit more, I’ve never had a job that paid minimum wage… ever. I always made at least $1 more in base pay, sometimes as much as $5 with tips when I was a busboy in middle school and high school.

    Still, that’s $936 a month before taxes… that’s cheaper than I’ve ever lived.

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