President Barack Obama continues to push for raising the federal minimum wage over a two-and-a-half year time frame, from its current $7.25 an hour to $10.10, then indexing it to inflation. Increasing the federal minimum wage was a key point of his State of the Union Address. Soon afterwards he signed an executive order raising the minimum wage for federal contractors to $10.10 in 2015, a move that affects more than 2 million employees. Opponents of the proposal say it will cost jobs. Proponents say it will help the working poor. How do the arguments play out?
In Connecticut, during the first week of March, President Obama was joined for lunch by four New England governors who support his effort, Deval Patrick (D-Massachusetts), Dannel P. Malloy (D-Connecticut), Peter Shumlin of (D-Vermont), and Lincoln Chafee of (D-Rhode Island). They met at a diner that pays its workers $10 an hour. “As the [diner] owner put it,” Obama said, “he knows what it’s like to work all his life and he understands that if people are working hard, they shouldn’t be in poverty, and that we should be able to do everything we can to make sure that happens.”
The federal minimum wage was last raised five years ago from $6.55 to $7.25, an increase of just over 10 percent. Meanwhile, from 2009 to 2012 the top 1 percent saw its income grow by 31.4 percent.
Why increasing the minimum wage is a bad idea
U.S. House Speaker John Boehner (R-Ohio), said raising the minimum wage would hurt the poor. “When you raise the price of employment, guess what happens? You get less of it,” he said.
According to the non-partisan Congressional Budget Office, raising the minimum wage would ultimately reduce employment by 500,000 workers It’s a conclusion the White House disputes.
“The last thing, it seems to me, we ought to be doing is destroying jobs,” said Senate Minority leader Mitch McConnell (R-Kentucky).
Some contend that raising the minimum wage will sap the motivation of workers to train for better jobs and improve themselves. Others argue that with differing costs of living across the country, minimum wages are better set by the states. As of Jan. 1, 21 states plus the District of Columbia have higher minimums than the federal standard.
Why raising the minimum wage is a good idea
For about forty years the minimum wage has fallen behind inflation in real terms. In 1968 the minimum wage peaked at $8.56 in 2012 dollars while worker productivity has doubled. The Center for Economic and Policy Research, in a 2012 study, concluded that if the minimum wage had kept pace with inflation, it would now be $10.52 an hour.
Since the recession, more lower wage jobs have been created than good paying ones and the new ones pay less than before. Although only 3.8 million workers are paid the minimum wage, raising it would benefit 21.4 percent of the workforce, as this income group would then be earning more.
Increasing the minimum wage would shrink the federal deficit, since fewer workers would qualify for the earned income tax credit (EITC). The EITC benefits not only low income workers, but employers who don’t need to pay more to keep good workers. A study by University of California, Berkeley researchers Rachel West and Michael Reich concluded raising the minimum wage would allow 3 million people to quit the Supplemental Nutrition Assistance Program (SNAP) formerly known as food stamps.
The money earned would act as a stimulus to the economy since of necessity the working poor spend a larger proportion of their income than the wealthy.
Costco’s President and CEO, Craig Jelinek, supports the president’s proposal, “Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty.”
Raising the wage would help ameliorate income inequality
Income inequality in the United States is now at the highest it has been since 1928 just before the Great Depression. According to a University of California Berkeley study by professor Emmanuel Saez the top 1 percent gets 22.5 percent of the nation’s pre-tax income while 90 percent of the nation gets less than half, 49.6 percent.
A raise in the minimum wage has little chance of passing the Republican controlled House, so expect the topic to surface as a campaign issue as the nation approaches midterm congressional elections.
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