The minimum wage is now set at $7.25 per hour;  29 States will see an increase and 21 will not. Connecticut, New Jersey, Oregon, Washington, Vermont and California have minimum wages of $8 per hour or more and they will not be affected. 

Kai Filion, an economist with the Economic Policy Institute in Washington, estimated that more than 2.8 million workers will have their wages lifted to $7.25 an hour on Friday. More than 1.6 million workers will also be indirectly affected, according to Filion, meaning their above-minimum wages will increase as the rising tide lifts all boats. "It gets additional money to low-wage workers," said Shierholz. "These are workers who are mostly struggling to get by and will spend that extra cash. This is actually stimulus."

This is where the faulty logic comes in. Taking money from business and giving it to low skilled workers. What do economist think the business would do with the money?  They have 5 options, spend it on capital equipment or inventory, expand their business, take it out in higher wages for themselves, pay off debt or save it for future investment. In all of these choices, the money spent or saved  would help the economy more than increasing the minimum pay of workers.

If you had 10 employees making $6.50 per hour, hourly payroll cost increase by 75 cents, your total hourly payroll is $7.5 per hour higher without accounting for the additional social security and unemployment taxes.  This can possibly result in the reduction of employee count to compensate for the higher costs. After all, business budget payroll costs as a percentage of sales. If sales are not rising, prices cannot be increased and therefore payroll needs to be cut.

As noted above, If the business could not afford the extra payroll cost they would have no alternative but to layoff one worker to compensate for the increased costs.  Bottom line, the minimum wage increase is good on its surface but in the long run additional workers are not hired, this does not help the unemployed.  Business expansion helps the economy, increases in costs do not. Remember, the more money businesses make, the more they pass on to their employees in higher wages and benefits. This has been proven time and time again. There is no question about it.

When employees, who have years of experience see inexperienced workers get a .75 cent raise they react two ways. Either they accept the fact and continue to be as productive as before, hoping for a likewise increase in their base pay or they begin to slack off as they do not see any benefit in working harder if their ability is not recognized by their employer.  On the other hand the employer reacts just the opposite, he can't afford to give the experienced worker an increase in pay because his labor costs have increased. And he becomes irritated at the new work ethic of his older workers who now mimic the work ethic of the new workers. The more experienced worker becomes complacent, his wage has not increased, he becomes disppointed, his hard work is not recognized.   As the laws of physics are applied to labor it becomes a no win situation. For every reaction there is an opposite and equal reaction.
 

READ THE FULL STORY AT CNN.COM
http://money.cnn.com/2009/07/24/news/economy/minimum_wage/index.htm