To Lift Minimum Wage or Not to Lift It, That is the Question

The Obama administration has created a Hamlet-like to do or not to do situation for Congress; legislators can either translate the President’s call for an increase in minimum wage into law and potentially cause further unemployment, or keep the pay level at $7.25 and risk leaving young people and minorities further behind in the economic recovery.

Economic experts are split on the potential effects that raising federal minimum wage to $9 per hour could have on workers. In his State of the Union address, Obama proposed a $1.25-per-hour increase, along with a plan to index minimum wage to inflation, and supported it with the argument that “employers may get a more stable workforce due to reduced turnover and increased productivity.” But this may not be the case.

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The Wall Street Journal has taken issue with an assertion made by the White House that “a range of economic studies” show “that modestly raising the minimum wage increases earnings and reduces poverty without measurably reducing employment.”

Comparatively, many economists have argued that raising the minimum wage will hurt low-wage workers because employers will have to cut back payrolls due to increased labor costs. The White House’s claim — with its heavy use of inexact wording like “modestly” and “measurably”  – could hide a whole host of economic problems that stem from the higher wage…
After examining more than 100 academic studies on the minimum wage conundrum, University of California at Irvine economist David Neumark told the Journal that the White House has “grossly misstate[d] the weight of the evidence.” About 85 percent of the studies found “a negative employment effect on low-skilled workers,” he added, meaning that some workers will get a $1.75-wage increase, but the less-skilled and less-educated workers could be priced out of the market, and their pay will not change to $9, but to zero.

Reuters termed Obama’s plan a “poor solution.” In his address, the President noted that a full-time worker earning the federal minimum wage of $7.25 an hour makes $14,500 a year, an amount far too small to support a family with two children. However, the facts, as stated by the publication, show little support for Obama’s claim.

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The share of full-time workers who earn the federal minimum wage is very low; as of 2011, just 1.7 percent of full-time hourly employees were earning the minimum wage or less. Economists Joseph Sabia and Richard Burkhauser told the publication that only about 11.3 percent of workers, assuming no jobs were lost as a result of the increase, would benefit from the hike.

However, The New York Times found favor with the plan…

Given that the current minimum-wage puts workers below the poverty line, several economic measures — including purchasing power, average wages and productivity gains — indicate that the minimum wage should be at least $10 an hour. For those low-wage earners, despite the fact that they may still live at home, the minimum wage is more than an antipoverty program, said the Times. “For them, and for the broader economy, an adequate minimum wage can help ensure fair pay and stimulate the economy by putting more money in consumers’ wallets.”

Small business will not suffer, added the publication, in an attempt to put to rest another argument against minimum wage that conservatives have posed. Research has shown that higher labor costs are offset by lower labor turnover, small price increases, or other adjustments.

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With Congress divided along fairly strict party lines regarding the nation’s fiscal policy and deficit problems, in all likelihood, there will be a fierce battle over this proposed increase. However, Republicans who are expected to argue vehemently against the hike have precedent for passing similar measures. Both Presidents Bush and a Newt Gingrich-led Congress in 1996 passed minimum wage increases, but only time will tell if history will repeat itself.