Experts dispute value of Obama’s proposal to hike minimum wage

Advocates of a proposal to raise the minimum wage argue that it will lift millions of low-wage workers out of poverty, but opponents say the plan would have the opposite effect, killing jobs and making it more difficult for some to find work.

In his State of the Union address on Tuesday night, President Obama urged Congress to raise the minimum wage from the current federal level of $7.25 an hour to $9 an hour by 2015 and index it to inflation. 

ADVERTISEMENT
“This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead,” Obama said. 

His remarks brought a flood of reaction from both sides of the argument, with the Economic Policy Institute saying that 15 million workers would directly benefit from the increase in hourly wages, pushing up paychecks by $22 billion by 2015.

That EPI analysis showed that more than half of those who would be affected are women, more than four in five are 20 years of age or older, more than a quarter are parents and more than a third are married, Doug Hall, EPI’s director of the Economic Analysis and Research Network, wrote on Wednesday. 


Yet, several business leaders argue that it would only hamper the ability of young, unskilled and even low-skilled workers to establish themselves in the labor force while adding the burden of higher costs onto restaurants, stores and other smaller firms. 

National Federation of Independent Business (NFIB) chief economist Bill Dunkelberg said the wage increase would make it harder for unskilled workers to get a job and that the raise in labor costs would be passed on to customers who would have less purchasing power. 

Dunkelberg cites the last minimum wage increase in 2009 as the reason why there were more than 800,000 teen jobs lost that year and why the jobless rate for that age group is stuck above 20 percent. 

He argued that 60 percent of people considered to be living in poverty don’t have a job and said raising the minimum wage would only create another hurdle their entrance into the labor force. 

“If the president wants to boost the economy and have an impact on the country’s unemployment rate, he needs to lower barriers to hiring — not raise them,” said Michael Saltsman, research director at the Employment Policies Institute. 

Studies published by the Saltsman’s group show that only 11.3 percent of workers who will gain from an increase in the federal minimum wage to $9 an hour live in poor households. 

David French, the National Retail Federation’s senior vice president for government relations, suggested that Washington provide a broader plan for businesses to invest in the economy. 

“A minimum wage hike right now would be one more factor driving up costs for employers and creating headwinds for job creation, especially among the small businesses that create most of our nation’s new jobs,” French said. 

In contrast, an EPI study showed that increasing the federal minimum wage to $9.80 by July 1, 2014, would raise the wages of about 28 million workers, who would receive nearly $40 billion in additional wages over the phase-in period.

That would provide a roughly $25 billion boost to economic growth, resulting in the creation of approximately 100,000 net new jobs over that period, according to EPI.

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. 

All told, 19 states have already established minimum wage rates higher than the current federal rate of $7.25. 

Last year, Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-Calif.) pressed for an increase in the federal minimum wage to $9.80 over three years. 

Harkin said Wednesday that he and Miller are working on reintroducing the legislation this year that would bump up that amount to $10.10 an hour by 2016 and increase the tipped minimum wage from $2.13 per hour, where it has been since 1996, until it reaches 70 percent of the regular minimum wage. 

While Harkin said Obama “way undershot the mark on raising the minimum wage,” he added that Obama’s idea of connecting the minimum wage to the cost of living was “excellent.”

“But you got to have a good starting point. If you’re going to start really low at $9 an hour now, you’re never ever going to get up in the minimum wage. You’re always going to be lagging way behind,” Harkin said. 

The bill from Harkin and Miller didn’t make much progress last year and, if Speaker John Boehner (R-Ohio) has anything to say about it, it might not have much of a chance this time around. 

Boehner argued that a higher minimum wage results in fewer jobs. 

“When you raise the price of employment, guess what happens? You get less of it. At a time when the American people are still asking the question, ‘Where are the jobs’ — why would we want to make it harder for small employers to hire people?” Boehner said.