Jury’s Out on Wisdom of Raising the Minimum Wage
Jury’s Out on Wisdom of Raising the Minimum Wage

The president’s executive order requiring federal contractors to pay their employees a “fair wage of at least $10.10 an hour” was probably the most memorable initiative of Tuesday’s State of the Union speech.

President Barack Obama’s push to offset decades of inflation by raising the minimum wage would ripple through the economy and touch the lives of millions of workers and their families.

Republicans said some of those in need would be harmed, not helped. A higher minimum wage would dampen hiring, they said, or even lead to layoffs at a time when the nation is struggling with high unemployment.

“It’s bad policy, and it will hurt the very people the president purports to want to help,” House Speaker John Boehner said Tuesday.

About 1.6 million Americans work for minimum wage, mostly service industry workers, according to the U.S. Bureau of Labor Statistics.

Another 2 million people are paid even less, because of various exceptions in the law. Many are waiters, bellhops, and others whose wages are augmented by tips from customers. Their minimum is lower—$2.13 an hour—and hasn’t gone up for more than two decades.

Democratic lawmakers pushing for the increase predict it would lead to raises for some 30 million people due to pay scale adjustments that would have to be made by businesses, as well as other factors.

The last time the federal government acted to increase the minimum wage was in 2007. It was phased in to $7.25 in 2009. At this rate, full-time work yields $15,000 per year. For a worker supporting a family of two, that falls just below the federal poverty line.

“If you cook our troops’ meals and wash their dishes, you shouldn’t have to live in poverty,” Obama said Wednesday, promoting his initiative to workers at a Costco in Lanham, Md.

Costco was a symbolic place for the president to tout his policy agenda. The company is known for paying its workers higher than average wages. According to Obama, average pay for a Costco worker is $20.00 per hour. Entry-level workers make $11.50 an hour, well above the federal minimum wage of $7.25.

Ultimately, Obama wants Congress to raise the federal minimum wage to $10.10 per hour.

Reagan Years

Obama put the federal minimum wage increase in terms clearly meant to be palatable to conservatives, yet he can expect resistance to the idea in the Republican-led House.

Obama said during his State of the Union the federal minimum wage is worth about 20 percent less (adjusted for inflation) than it was under Ronald Reagan. It was $3.35 for the eight years of Reagan’s administration.

According to PolitiFact, the president was close, though not perfectly accurate: “In 1981, the minimum wage, adjusted to inflation was $8.61. Today’s mark of $7.25 is 15.6 percent less.”

Obama also evoked capitalist icon Henry Ford, who “realized he could sell more cars if his workers made enough money to buy the cars.”

“He had started this—factories and mass production and all that, but then he realized, if my workers aren’t getting paid, they won’t be able to buy the cars,” said Obama.

“And then I can’t make a profit and reinvest to hire more workers. But if I pay my workers a good wage, they can buy my product, I make more cars.”

Of Costco CEO Craig Jelinek, Obama said he was following the same logic as Henry Ford. He also joked that he could use a 50-pound bag of dog food for Sunny and Bo and that he’d like to take home an 80-inch flat screen for the Super Bowl.

Arguments Against

An argument against raising the minimum wage is that these workers are not typically primary breadwinners, so they don’t need as much income. Also, requiring a wage increase will make it harder for businesses to hire entry-level workers.

Richard Burkhauser, professor of policy analysis at Cornell’s College of Human Ecology, said in a statement: “Increases in the minimum wage may be of value to those interested in symbolically helping the working poor, but the reality of past minimum wage increases is quite different for teenagers and low-skilled workers. They are job killers for low skilled workers.”

A minimum wage increase would not reduce poverty, according to Burkhauser.

He added the vast majority of those who benefit from minimum wage increases are not poor: they are second or third incomes in families which are not poor.

Most minimum wage workers are adults, but teens and young people make up a disproportionately large share: half of minimum-wage workers are under age 25. Nearly three-quarters have a high school degree or more education. More than three-quarters are white. Nearly 2 out of 3 workers are female.

Dangerous Trends

Another expert from Cornell thinks an increase in minimum wage to $10.10 is too little in the face of larger economic forces.

“President Obama gave a great performance last night and displayed compassion for the plight of the American middle class,” said Thomas Hirschl, professor of development sociology, in a statement.

Hirschl wrote that Obama’s various initiatives to boost wages, broaden access to college, retrain workers, and boost retirement savings, “will not rebuild the middle class, nor reverse the 40-year inequality trends.”

“These dangerous trends will continue in spite of his program, and will push the country closer to economic collapse and depression,” he wrote.

The president would prefer to see things more optimistically.

“[R]aising the minimum wage doesn’t require new spending by the federal government. It doesn’t require a big bureaucratic program. It would help a lot of Americans make ends meet,” he said.

Additional reporting by The Associated Press

  • rg9rts

    The gopee is positive this time just as the were every other time, that if you raise minimum wage the world will end as we know it. And for a change they are right. People will have more money in their pockets! What a novel idea

  • begabug

    fables persist.

  • madkoz

    If people have more money, they buy things. when they buy things sales increase, when sales increase, production increases, when production increases you need to hire more help. Hiring more people at a higher wage means they have more money to spend. Spending drives this economy, seems simple but then when you add politics and special interests into the mix along with unmitigated greed things get complicated. Keep it simple just raise the rate..

    • LTE2

      “Keep it simple just raise the rate..”

      Oh, what about the CO2s???? With all that consumin’ going on, we’ll all be underwater. If you raise the minimum wage, environmental Armageddon will happen. Keep’em poor and save the polar bear.

  • missjulz

    They miss an important part of the impact of raising minimum wage. When you raise it there are subsequent raises for employees in positions where they were already earning at the new minimum wage or just above. it’s called the ripple effect discussed here: http://www.brookings.edu/blogs/up-front/posts/2014/01/10-ripple-effect-of-increasing-the-minimum-wage-kearney-harris#
    And so earning and spending power increases for many more people than those just below or at minimum wage. It is a bigger boost to our economy for more people than those just paid at minimum wage.

  • Pony

    While raising the minimum wage is long overdue its not going to fix the underlying problem. A lack of middle class blue collar sustainable jobs. That’s the real drive to raise minimum wage isn’t it. Mom and Dad asking their teenager to bring home an application from ( Insert various fast food chain ) to try and hang onto the family home. It seems now the only jobs that aren’t offshore are the ones that have to provide a direct service.

    • The Pope

      When I got back from Nam in 1971, I has several choces of factories that I could apply for a job. None of those factories are open today.

      • Pony

        Yes they are. Just not here.

  • xigan

    I wonder how many people have more than one job, because that’s the only way to make a living? There’s probably not one of them who wouldn’t give up their second and tertiary job if it were possible to live on the primary one. So, yes, there may be layoffs. But there may also be people who can finally quit extra jobs. Employers would profit from that just as much as employees do. It’s simply not possible to be productive at more than one full-time job.

    • Canukistani

      I couldn’t agree more, and I don’t understand how the jury could be out on something that seems so obvious. How can part-time, low-wage workers take a serious interest in being productive in their present working conditions?

      I’ve heard a number of people in low-paying jobs interviewed that say their employers refuse to give them too many hours of work because then they’d have to be paid benefits. Keeping them as part-time staff avoids that, and works better for the employer’s bottom line – at least in the short-term.

      The result is that these workers have to take 2 or maybe 3 part-time jobs and probably end up working more hours than they would at a full-time job just to get by. It also means that these workers have little chance to get ahead because they can’t afford to take time for training to move up the ladder.

      They’d said they’d be happy to have one job with a reasonable salary so that they had time to do more than just be serfs with no easy way out. When asked what they’d do if they had stable full-time jobs with benefits they said they’d do wild and crazy things like get a full-sized fridge or get a root canal that they’d been putting off for a couple of years. It was sad to hear what many of them had been through just trying to stay afloat.

      I’m amazed that employers don’t seem to have any idea that by treating their workers better they’d be more productive and profitable in the long-run and that those employees would be helping the economy by buying the products that they produce.

      • Pony

        If the panacea for ending poverty was more money we would have bought ourselves out of it a long time ago. Instead we’re worse off than ever.
        With one had our leaders have allowed with their blessing the offshoring of manufacturing. And with the other are now demanding that employers pay ‘ living wage’ . They are the ones who took away the living wage and are now trying to deflect from their responsibility in this.
        The minimum wage jobs were and still should be entry level and the part time jobs that spouses or SO’s held to bring in extra income. Not the sole source.
        By all means raise the min wage to 15 dollars an hour and watch the real death spiral that will happen.
        As to the root canal. That should have been in a national health care plan for everyone instead of selling us to the insurance companies.

      • xigan

        Yes, that’s exactly what poverty wages buy an employer: An employee who is overworked before he shows up for work. If you refuse to finance an employee’s downtime, there’s no chance he’ll be productive at work. Hours do not equal productivity.

        Speaking from personal experience: I’ve tried to pull many all-nighters in my life and almost without exception I got far less done in those overlong sessions than in a regular eight hour shift. That’s surely not a unique experience. You simply can’t get things done when you’re running on empty. Your ability to concentrate suffers. Your co-ordination suffers. Your short term memory suffers. Etc. etc.

  • Trilby16

    The jury’s out on this? I don’t think it is!

    Workers deserve to live a decent life. Plus, when they’re underpaid, they have to use social services and supplements, so taxpayers are in effect adding to the bottom line of the employers who pay badly.

  • LTE2

    This raise the minimum wage movement might be tied into mitigating the damage done once you legalize the current batch of illegals.
    No doubt many if not most of these people will be able to collect welfare benefits (something neither political party wants to address). If you raise the minimum wage now, then legalize the illegals, this will reduce the potential huge demand for welfare once the amnesty is granted by pushing wages just above the benefits threshold.
    Essentially, you’re trying to hide the potential social costs by forcing the employer to pick up the tab or at least part of the tab.

    • Hazelhill

      Currently, the employers are having the taxpayer pick up the tab, by paying wages so low that employees need food stamps to survive.

      • LTE2

        “Currently, the employers are having the taxpayer pick up the tab”

        True but the increase in minimum wage will cause little economic growth but you may end up with stalled job growth. When did the economy ever boom from previous increases?
        The most that could be hoped for is the employees might be able to pay their electric bill on time.
        With amnesty, you will have millions of new people collecting welfare, so any effect from a minimum wage increase would be economically neutralized.

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