It will be a happier new year for minimum-wage earners in eight states.
Hourly rates will increase between 28 and 37 cents per hour Jan. 1, 2012, for Arizona, Colorado, Florida, Montana, Ohio, Oregon, Washington and Vermont. This raise amounts to $582 to $770 more to spend (or save) per year for a full-time worker. So how much better off will workers be?
While the raise affects more than 1 million minimum-wage workers, the Economic Policy Institute estimates increased consumer spending generated by the raises will lead to an additional $366 million in gross domestic product, or GDP, and create the equivalent of more than 3,000 full-time jobs.
About 400,000 more workers will also see a raise, as pay scales are adjusted upward to reflect the new minimum wage. GDP is one of the economic indicators of the health of the economy, and analysts along with advocates of low-wage earners are jumping all over this increase.
But does raising the minimum wage, what amounts to between $11.20 and $14.40 per week, really put any noticeable amount of money in the pockets of low-wage workers? I wanted to hear from a family finance expert how this affects families and the economy without all the jargon, so I asked Erica Sandberg, editor-at-large for CreditCardGuide.com.
"It's a nominal increase that's probably not going to have a huge financial impact on a family's financial well-being," she says. "But in the grand scheme of things, it will cumulatively have an effect on retailers and grocery stores, such as Wal-Mart, as more than 1 million people spend a little bit more in their stores. When retailers do better, stockholders do better and spend more, which puts more money into the economy, which means increased hiring. This is a positive cycle that repeats itself," explains Sandberg.
Eighteen states and Washington, D.C., have minimum-wage rates above the federal level of $7.25 per hour, which is just more than $15,000 per year for a full-time minimum-wage earner. The federal rate loses value every year it is not increased by an act of Congress, but the eight states that hiked the minimum this year do it yearly. This is a result of state laws requiring the minimum wage to keep up with inflation.
Legislation to increase the minimum wage and add an annual cost-of-living adjustment was introduced in several states this year, and advocates plan additional minimum wage campaigns next year in Missouri, New Mexico, Connecticut and New York.
According to the demographic breakdown of minimum-wage workers in each of the eight states, roughly 69 percent to 85 percent are older than 20. So what's a family to do with their extra wages? "If the extra $14 can ease some financial strain or improve your quality of life a little, then it is smart spending," says Sandberg.
If you have teenagers in the 15 percent to 31 percent of minimum-wage earners who fall under age 20 in these eight states, Sandberg advises you urge them to think about how they are already spending and saving their earnings and make budget adjustments to the plan with the extra money.
If you had $14 more to spend every week, would it go straight to Panera, diapers, food, your gas tank or to savings?
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