Experts debate the benefits of a proposed minimum wage hike

An Obama administration proposal to raise the minimum wage may not help as many low-wage earners as estimated, although some economists argue that the policy will reverberate positively through the economy.

Keith Hall, a Mercatus Center scholar at George Mason University and former head of the Bureau of Labor Statistics, said the only real avenue to increasing wages and assisting those with incomes below the poverty level is to create jobs.

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"It's probably not going to affect that many people," Hall told The Hill.

"Putting it into context — those who are trying to support families are not who are making minimum wage."

In 2011, 1.7 million workers earned exactly the prevailing federal minimum wage of $7.25 an hour out of 73.9 million workers age 16 and older who were paid hourly rates, according to BLS.

Of all minimum wage workers, 50 percent are under age 25, many work part-time and dominate a handful of occupations including food service, ground maintenance, personal care services and sales and office occupations, Hall said.

"If you force employers to pay more than they want, they are less likely to hire teens and low-skilled folks and, instead, will cut workers hours and benefits," Hall said.

While Hall concedes that the debate over the minimum wage has gone on for decades without a true economic consensus, most of the data consistently show that raising the minimum wage hurts low-skilled workers more than other groups, independent of whether they make minimum wage.

Overall, the proportion of hourly workers earning the minimum wage or less declined to 5.2 percent in 2011, far below the historic high of 13.4 percent in 1979, according to BLS.

Mark Zandi, chief economist at Moody's Analytics, said the income boost could help some households, although it could, in turn, hurt businesses.

"The president is correct that it would raise the amount of income going to lower income households," Zandi told The Hill.

"The wage increases to those earning the minimum wage would be greater than the lost income due to fewer jobs and hours worked," he said.

"However, it would also likely mean lower profits for businesses employing minimum wage workers and higher prices as businesses try to pass through their higher labor costs."

In his State of the Union address, President Obama suggested that lawmakers consider raising the minimum wage to $9 an hour by 2015 from $7.25 an hour in an effort to help working families.

"Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9 an hour," Obama said.

The president asked that the federal minimum wage also be indexed to inflation.

There are 46 million people in poverty — 8 million of those were added during the economic downturn — and 16 million who don't have jobs, Hall said.

"If you're really serious about reducing poverty you need to get people jobs and you have to grow the economy," he said.

"The government can't do that much," he said. "We need to encourage economic growth. We need to have the private sector get going, decrease uncertainty and increase demand."

There also is the consideration that 19 states and some cities, have already established minimum wage rates higher than the current federal rate of $7.25, according to the National Employment Law Project (NELP), which is leading the national effort to increase wages.

Still, some groups say the president's plan would have broad implications for helping millions of people.

First off, NELP argues that the issue should be looked at from the perspective of the number of workers who would benefit from raising the minimum wage, instead of looking just at the number of workers who earn exactly the minimum wage.

"We have found that raising the minimum hourly rate to $9 by 2015 would directly boost the wages of over 13 million Americans," said Natalie Sabadish and Doug Hall of the Economic Policy Institute (EPI) in a report on Thursday.

All told, in a revised estimate, EPI found that nearly 18 million workers would get a raise under the president’s proposal and, in part, on legislation introduced by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) that would increase the hourly wage, eventually to $10.10 an hour.

A minimum wage increase would benefit mostly low- to middle-income families with about 70 percent of them making less than the median income of about $60,000 a year or less.

Among those that would benefit, more than half (54.2 percent) of families earn less than $40,000 per year, according to Sabadish and Hall.

The increase would help struggling families "make ends meet in a difficult economic environment" and "it will also spur economic growth," they wrote.

The proposed minimum wage hike would also help workers across all races and ethnicities — 53.1 percent are white and 25.2 percent are Hispanic.

The vast majority — 84.1 percent — of those benefiting from the president's plan are at least 20 years old, so that means that less than 16 percent of the workers affected are teenagers.

Additionally, about half (47.3 percent) of the 18 million affected workers are full-time employees, working at least 35 hours per week.

"It is clear that the bulk of minimum wage workers are mid- or full-time adult employees, not teenagers or part-timers," they wrote.

Congress last voted to raise the federal minimum wage in 2007, approving legislation that raised the minimum wage in three steps from $5.15 per hour to the current rate of $7.25 by July 2009.