In the wake of the worst economy in decades, a new stimulus is scheduled to take effect next month -- one which will increase pay for about one of every 10 workers, increasing spending power by an estimated $5.5 billion -- yet one prominent economist is arguing against it.

Not only does David Neumark, a professor of economics at the University of California, Irvine say the 70-cent per hour increase in the minimum wage to take effect July 24 should be postponed -- he argues against setting any minimum wage at all.

The minimum wage will go to $7.25 per hour from the current $6.55, the third phase of the increases enacted by Congress in 2007 when the minimum wage was $5.15 per hour. Two earlier increases brought the minimum to its current level. And during the presidential campaign, then-candidate Barack Obama called for a further increase in the minimum wage -- in two stages to $9.50 by July 2011.

The increase will affect as many as 13 million wage earners, according to the Economic Policy Institute, and could pump $5.5 billion into the economy in increased household consumption power, a critical element in boosting gross domestic product. Consumer spending reached a record 72% of gross domestic product in the first quarter.

“The best estimates from studies since the early 1990s,” Neumark said, “suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.”

Neumark’s assertions fall flat, though, against history -- and the stimulus from increasing the spending power of workers with a greater propensity to spend will far outweigh any losses in employment he projects. 

For starters, the number of people immediately affected by the increase is minimal: about 2.3 million workers, according to data from the Bureau of Labor Statistics, which tabulated the number or workers above the age of 16 who earn just the federal minimum. According to the EPI which included in its tally individuals who earn something between the current and new minimum, 3.3 million workers earn something between the current floor and the new minimum. Add to that about 7.4 million workers whose wages are tied to the minimum and will go up accordingly, based on employers who maintain internal wage ladders -- a differential between more experienced and newly hired workers.

In addition, there's evidence that the job-loss concerns voiced by detractors of minimum-wage increases may be overstated.

 “The simplistic introductory economics prediction that an increase in the minimum wage will result in job loss clearly is not supported by the actual job growth record,” the Fiscal Policy Institute, a New York-based economic think tank concluded in a 2006 study. “Rather, faced with an increase in the minimum wage, small businesses may have benefited from some combination of higher productivity through improved worker retention and savings on recruitment and training. There may also be a ‘Henry Ford’ effect at work: if you pay workers more, they can buy more, boosting the overall economy, especially among small retail businesses.”

And, the FPI study said, the impact of the minimum wage increase may be precisely the opposite of what Neumark concluded.

“This report also found that total job growth was faster in the higher minimum wage states,” according to FPI. “Faster job growth also occurred in the retail trade sector, the sector of the economy employing the most workers at low wages, in the higher minimum wage states.”

Economic Policy Institute economist Heidi Shierholz noted, too, the staged nature of the increase in the minimum wage counters the argument job losses will result.

“Even if you do believe there is an employment effect,” she said, “you won’t see it at the later stages of implementation. Businesses have had a chance to plan for this change.”

The minimum wage debate is complicated by the existence of two minimums set at federal sand state level. Workers receive the higher of the state or federal minimums. According to EPI, 11 states -- including California, Connecticut, Massachusetts, the District of Columbia, Illinois, Michigan, New Mexico, New Hampshire and Rhode Island -- already have a minimum wage at or above the new federal minimum.

Some observers contend that because many small businesses are labor intensive and largely employ low-wage workers, they will experience sharp cost increases when the minimum wage is increased, leading them to reduce employment levels. However, the FPI study examined recent state-by-state trends for small businesses employing fewer than 50 workers and found that employment and payrolls in small businesses grew faster in the states with minimum wages above the federal level than in the remaining states where the $5.15 an hour federal minimum wage prevailed.

This report also found that total job growth was faster in the higher minimum wage states. Faster job growth also occurred in the retail trade sector, the sector of the economy employing the most workers at low wages, in the higher minimum wage states.

One group the minimum wage increase would not cover is workers who rely on tips. An employer, the Congressional Estimate office said, may pay a tipped employee not less than $2.13 an hour in direct wages if that amount plus the tips received equal at least the federal minimum wage, the employee retains all tips and the employee customarily and regularly receives more than $30 a month in tips. If an employee's tips combined with the employer's direct wages of at least $2.13 an hour do not equal the federal minimum hourly wage, the employer must make up the difference.

Some states have minimum wage laws specific to tipped employees. When an employee is subject to both the federal and state wage laws, the employee is entitled to the provisions of each law which provide the greater benefits.

Neumark said a good chunk of the increase would go to teens who come from more affluent households but hr Department of Labor provides and employer that hires students can obtain a certificate from the Department of Labor which allows the student to be paid not less than 85% of the minimum wage. The certificate also limits the hours that the student may work to 8 hours in a day and no more than 20 hours a week when school is in session and 40 hours when school is out, and requires the employer to follow all child labor laws. Once students graduate or leave school for good, they must be paid $5.85 per hour effective July 24, 2007; $6.55 per hour effective July 24, 2008; and $7.25 per hour effective July 24, 2009. 

While it is true, the increase in wages will shift money from profits to individuals with a greater propensity to spend -- spending is the key to reviving the economy.

Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president at Washington Mutual, where he was manager of economic analysis and research. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He has a degree in Economics from the Wharton School of the University of Pennsylvania.