Recently, President Clinton and congressional Republicans are signaling a possible tax compromise that would help people pay for long-term health care, save for retirement and give business breaks to absorb a $1 minimum wage increase. It would raise the minimum wage by $1, to $6.15 per hour, over a two-year period.

A federal minimum wage of 25 cents per hour ($2.96 in 1999 dollars) was first established as a part of the Fail Labor Standards Act of 1938 (FLSA). Since its inception, the federal minimum wage has been increased 19 times, and the FLSA has been amended numerous times to expand the workers covered by the minimum wage provision.

The Figure 1 shows the value of the federal minimum wage from 1938-2000 both in nominal and in inflation-adjusted (1999) dollars. And the State minimum wage laws can also differ with regards to converge and overtime pay. Ten s

ductivity and quality of service. So while overall cost to businesses will most likely increase, it may not be by much.

The strong labor market of the last four years, however, is not definitive proof that the minimum wage has no adverse effects on employment. Numerous other factors affect the job market, and workers paid at or near the minimum wage are a relatively small fraction of the overall workforce. Actually, wages for most entry level, low-skill positions are already far above the minimum wage due to labor shortages. In some states, it's not uncommon to see jobs in fast-food restaurants, for example, paying the vicinity of $8 an hour. Some, happily, even offer health benefits.

THE MINIMUM WAGE AND INVESTMENTS IN HUMAN CAPITAL

The effects of minimum wage on employment and unemployment are widely debated. There are many academic studies that advocate different points of view. Some maintain that the wage increases cause employment to decline and business to fail as owners respond to rising labor costs. In addition, some warn that the wage increase may result in rising prices and reduced working hours, harming the low-wage workers the increase is designed to help. Alternatively, others insist that an increase in the minimum wage is an effective way to help the working poor, has minimal negative employment effects, and will not cause significant harm to business.

The precise impacts of increasing the minimum wage are not easy to predict. The effects of an increase in the minimum wage will depend on many factors, including the size of the increase, the time period allowed for the increase to take place, labor and product market conditions, and labor shortages or surplus. Other factors include the unemployment rate, the prevailing market wage levels for entry-level workers, the skills and productivity of affected workers, the rate of inflation, and the ability of employers to absorb, offset, or pass on their higher labor costs.

at small businesses overall would not be greatly affected by an increase in the minimum wage.

Because the minimum wage is traditionally paid to people just entering the work force, the overwhelming majority of minimum wage employees are young, singer and childless. In fact, more than half, or 5.3 million, are under 25. Evidence about workers who currently earn the minimum wage is available from published tabulations provided by the Bureau of Labor Statistics (BLS).

If H.R. 2614 is passed, our first reaction would be neither to increase prices nor to lay off workers, but rather to determine parts of the business that could be run more efficiently. Because our business relies so heavily on the people that make and deliver pizzas, laying workers off is not a good option for us. In addition, in an extremely competitive retail environment, successful businesses are the ones that are stabilizing and even cutting prices. Consumers are extremely resistant to higher prices in a non-inflationary economy. There is a price ceiling at which people will no longer buy a pizza, so we must strike a balance between passing off labor costs in price increases while retaining customers.

IMPACT OF THE MINIMUM WAGE ON SMALL BUSINESS AND CONSUMERS

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