Minimum Wage Increase: Obama's Proposal and Realities

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In his State of the Union address Tuesday night, President Barack Obama urged Congress to raise the minimum wage from $7.25 to $9, saying the move would reduce poverty and stimulate the economy.


"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," President Obama said. "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.

"For businesses across the country, it would mean customers with more money in their pockets. And a whole lot of folks out there would probably need less help from government."

Unions and labor advocates are among the chief supporters of an increase in the federally mandated minimum wage.

"The president said he was putting jobs and the economy front and center tonight, and that's exactly what he did by calling for a minimum wage increase," Christine Owens, executive director of the National Employment Law Project, said in a statement.

"A higher minimum wage is key to getting the economy back on track for working people and the middle class. The president's remarks also cement the growing consensus on the left and right that one of the best ways to get the economy going again is to put money in the pockets of people who work."

But opponents of raising the federally mandated minimum wage have a decidedly different view of the president's proposal.

Would Raising Minimum Wage Cost Jobs?

Critics argue increasing the minimum wage would raise businesses' costs and, in turn, reduce the number of employees they could hire.

"I've been dealing with the minimum wage issue for the last 28 years that I've been in elected office," House Speaker John Boehner, R-OH, told reporters. "And when you raise the price of employment, guess what happens? You get less of it."

The minimum wage increase proposed by President Obama would eliminate at least 467,000 jobs at a time when the country already has a 7.9% unemployment rate, according to research by economists at Cornell and American Universities published in the Southern Economic Journal.

The Employment Policies Institute, a fiscally conservative organization that tracks entry-level employment, has found in multiple studies minimum wage increases have led to job losses and failed to reduce poverty or stimulate the economy, Michael Saltsman, research director at the Employment Policies Institute, told Fox Business.

Saltsman said President Obama's proposed minimum wage hike would have the same effects.

"Using a minimum wage increase to create jobs is like using an oven to create ice cubes - it just doesn't work," Saltsman said, adding that President Obama "needs to lower barriers to hiring, not raise them."

And Federal Reserve Vice Chairwoman Janet Yellen, an Obama supporter who opposes the minimum wage increase, said the proposal "wouldn't address one of the big problems holding back the economy, which is tepid spending and investment by households and businesses."

In the past, raising the minimum wage has not helped reduce unemployment.

Raising the minimum wage in 1980 and again in 1981, for instance, did not prevent the unemployment rate from increasing to 10.4% by the start of 1984.

And not increasing the minimum wage doesn't appear to have affected the unemployment rate.

From 1997 to 2007, there was no increase in the minimum wage and overall unemployment stayed below 5% while youth unemployment (ages 16-24) remained around 10%.

Now critics worry raising the minimum wage again will slow down our fragile 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," David French, senior vice president for

government relations at the National Retail Federation, said in a statement.

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