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NEW YORK -- The new federal minimum wage went into effect yesterday, boosting hourly pay for covered, non-exempt employees from $5.15 to $5.85 per hour. The increase is the first in a series, heralded by low-income advocates, but criticized by businesses as a possible financial blow, USA Today reported.
The next increase will occur on July 24, 2008, when the minimum wage will be raised to $6.55 per hour. Then, on July 24, 2009, the minimum wage will increase to $7.25 per hour, the report stated. The last minimum wage hike was in 1996 and 1997.
"The first step is incredibly modest, a 70-cent increase," Liana Fox, an economic analyst at the Economic Policy Institute (EPI), a nonprofit organization that receives funding from labor groups, told USA Today. "But by the third wage increase, 12.5 million workers will see wages go up. People see this as the right, moral thing to do."
However, 30 states and the District of Columbia already have minimum wages higher than the federal rate. As a result, only 20 states will be affected by this first wage increase. In addition, more than 70 percent of workers live in states where state minimum wages already exceed the new federal wage increase, according to EPI.
The higher federal minimum wage could mean fewer hours for employees, fewer pay increases for other employees, benefits reductions, job losses and waning job creation, according to Marc Freedman, director of labor law policy at the U.S. Chamber of Commerce.
"In particular, in the small-business sector where companies have restricted cash flow, any time you have to arbitrarily increase labor costs, they have to cover the costs in some ways," Freedman told USA Today. "They have to pay more and get nothing out of it."