Minimum Wage Part II

I told you about minimum wage going on in the Senate on Monday, but I should have looked to find its House counterpart (H65420A). This bill would increase minimum wage to $7.25/hour; the increase to $7.75/hour in 2008 as well as the cost index increases/decreases that were originally part of this bill have been stripped. Also, it is scheduled to be voted upon in the House today. So what do you think? Andrew commented last week that:

One of the problems with raising the minimum wage is that it impacts small, mom-and-pop style businesses disproportionately.

But the question I have is this: will the disproportionate affect on mom-and-pop business make such an impact as to impede these same businesses from operating? In other words, would the 7% increase in minimum wage cause some small business to either downsize, close shop-being unable to afford the increase, or would businesses jump the border seeking cheaper labor in Mass or Connecticut? To answer the last question, in Massachusetts there is legislation which would change the minimum wage from $6.75 to $8.25-making the Mass minimum wage the highest of any state's minimum wage in the country! That could have positive and negative effects for Rhode Island. Some businesses may be tempted to move from Mass to RI to pay $1.50 less per hour which is significant, but on the flipside low-income workers will be tempted to go across the border to Mass (and taking their tax dollars with them) and receive a much higher income doing the same work. I'm no economist, so I really can't say which is more likely to happen. But, if I was making 6.75 in RI and the minimum wage in MA was $8.25, I'd be looking to leave my job...and quickly. In Connecticut the minimum wage currently sits a $7.10/hour. It's higher than RI and I haven't heard that Foster/Gloucester has been inundated with new building projects sponsored by disgruntled Connecticut manufacturers, have you? Again as Andrew noted, minimum wage is always a dicey situation-and I just don't know if this will be a good or bad move for Rhode Island. Any hack economists out there are welcome to educate us.