Good for the economy or not?

Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont and Washington all bumped up their minimum wages.  In all of the states except one, Rhode Island, the pay hikes are part of automatic adjustments designed to keep up with the cost of living.

While on the surface, especially if you are one of the 995,000 workers set to receive the pay raise, this seems like a good idea.  People will make more, they will spend more thus buying more goods and services, and this will boost the economy right?

Well, not so fast.  The increase pay has to come from somewhere and that somewhere is from the employers.  Increasing costs are already looming over business owners thanks to the Affordable Care Act, also known as Obama Care.  The increase in operating costs for businesses will be passed along to consumers as price hikes.  There’s also a good chance that in the ten states that get an increase, that it would not be surprising to see landlords raising their rent to give themselves a little boost.  With goods and services priced higher, consumers are likely to sit on the sidelines and not spend.  …not good for the economy.

Hiring will also likely be affected by an increase in the minimum wage.  Employers that are feeling the results of a declined economy added with a forced pay increase will certainly postpone any plans they may have had to expand their business and hire new employees.

I hate to bring up the “fiscal cliff” again, but if lawmakers have not taken care to extend the payroll tax cuts, workers would pay 6.2% instead of 4.2%. — That would pretty much wipe out that pay raise.

Sometimes what seems like a good thing at first blush can turn out to be not such a great thing in the end.  If you are one of the lucky ones to get a pay raise I wish you the best and hope the unintended consequences are not as severe and you can enjoy your new found wealth.