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Obama’s Minimum Wage Call Sparks Familiar Debate in Challenging Economic Time

Rubio: “I want people to make a lot more than $9 an hour. I want people to make as much as they can."

by
Rodrigo Sermeño

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February 25, 2013 - 12:09 am
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President Obama is pushing for a minimum-wage hike he says will give a needed boost to Americans struggling to make ends meet, but Republicans say would just work against an economy trying to recover and people trying to find jobs.

In his State of the Union address, Obama outlined the key proposals on his agenda for the second term, including a call to raise the federal minimum wage for the first time since 2009.

“Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong,” Obama said. “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. This single step would raise the income of millions of working families.”

Obama’s proposal would boost the nominal wage to $9 per hour by the end of 2015 – an increase of 24 percent from the current minimum of $7.25 per hour. Obama also suggested indexing the minimum wage to inflation after 2015.

Data from the Organisation for Economic Co-operation and Development (OECD) shows that the federal minimum wage in the United States is lower than it is in other developed countries when adjusted for currencies’ different levels of purchasing power. Even if the minimum were raised to $9 per hour, it would still be behind several OECD members. According to the The Economist, America’s current minimum wage is close to the lowest among OECD members, equaling 38 percent of the median wage in 2011.

Twenty states have minimum wages above the federal rate, compared to 15 in 2010. Washington state has a minimum wage of $9.19 – the highest at the state-level. San Francisco increased its minimum this year to $10.55, making it the highest mandated minimum wage in the nation.

The last time the U.S. had an increase in the minimum wage was in 2009. That minimum-wage legislation passed during the Bush administration in 2007, after Democrats had vowed to approve an increase if they won control of Congress in the midterm elections in 2006. Under the Fair Minimum Wage Act – which passed as part of a larger appropriations bill – the minimum wage increased yearly from 2007 until 2009, when it reached its current level.

Obama’s proposal drew the predicted response: liberal and labor groups said it would raise the spending power of the poorest workers and reduce poverty. On the other hand, conservatives and businesses said it would increase unemployment among low-skilled workers.

“President Obama’s remarks tonight show he understands that a higher minimum wage is key to getting the economy back on track for working people and the middle class,” said Christine Owens, executive director of the National Employment Law Project.

Overall, Republican leaders responded negatively to Obama’s proposals. Senate Minority Leader Mitch McConnell (R-Ky.) called Obama’s speech a “liberal boilerplate that any Democratic lawmaker could have given at any time in recent memory.”

Sen. Marco Rubio (R-Fla.) denounced the proposed minimum wage hike as bad policy.

“I want people to make a lot more than $9 an hour. I want people to make as much as they can,” responded Rubio to Charlie Rose on This Morning.

But Rubio made clear his belief that minimum wage laws do not work.

“Nine dollars is not enough. The problem is that you can’t do that by mandating it in the minimum wage laws. Minimum wage laws have never worked in terms of helping the middle class attain prosperity,” Rubio said.

Numerous studies have focused on the effects of raising the minimum wage in the past few decades, often coming to very different conclusions.

David Neumark and William Wascher conducted a comprehensive literature review on the employment effects of minimum wage and found that “among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries.”

Michael R. Strain, a research fellow at the American Enterprise Institute, says the minimum wage will make it more costly for firms to employ workers – particularly low-skilled workers who are most likely to earn the minimum wage. In addition, raising minimum wages may reduce employer job training and worker benefits.

Economists have generally agreed that minimum wages are price distortions that would reduce the demand for workers affected by the wage. But since the 1990s, that assumption has come under fire from an increasing body of research.

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All Comments   (19)
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I make quite a bit more than minimum wage, but my earnings are still figured in dollars per hour and are not tied to the minimum wage. If the minimum wage increases, the minimum wage earners will see an immediate benefit. The problem is that six months down the road, the accountants have looked at their books and see that those jobs are costing 20% (7.25 to 9) more. So they raise the prices on their goods and services to compensate. Prices begin rising to re-balance the market.

Raising minimum wages 20% gives me a hefty pay cut.

(If I was doing the job I was trained to do at the average wage for that training, I'd be making at least double what I am now...)
2 years ago
2 years ago Link To Comment
A new employee who gets paid $9 per hour instead of $7.25 for a 2080 hr work year, earns $3,640 extra. So offer employers $4,000 for every new employee they hire at $9 per hour. That will cover the added cost to the employer. discontinued after the first year, when the employer ought to give the new employee a raise to $9 anyway. By having a job, the employee would become ineligible for unemployment insurance, so the pprogram would shift government expenditures for paying someone not to work, to paying them to work.

Increasing employment is the prime need to heal the economy.
2 years ago
2 years ago Link To Comment
I'll be blunt. Wages need to rise.

The reason we have so much entitlement costs and welfare is because wages have been artificially low for a long time. You used to be able to make a living as a retail clerk. It may not have been the best one, but in general, minimum wage work with frugality enabled many working class people to live on their own and even start families. Ralph Kramden was a bus driver, for example.

But wages have stayed flat or even declined in terms of purchasing power, leading to a lot of people who have to be subsidized in other ways just to do them. Your retail staff lives with their parents; in one of my jobs, we had some who worked from the homeless shelter. Your assistant managers need WIC to be able to feed their kids.

If wages don't rise and the private sector doesn't pay enough within reason to enable their staff to live, government will pick up the slack, and in doing so seize tremendous amounts of power. Until Repubs realize this, we are going to get hammered each time we raise the question and answer like this.
2 years ago
2 years ago Link To Comment
Obama's not calling for a debate, he is telling a lie. There has been no tax relief put in place just like there are no millions of families with kids skating by on minmum. Please. Even my kids when they were in high school were paid more than minimum.

It is one more dishonest argument in a string of many and it's past time for the GOP to stop being drawn into these things and just call BS for what it is. The minimum is being treated much like the sequester - Obama pretends to debunk an argument no one is making while hoping people can't see the man behind the curtain. Enough.
2 years ago
2 years ago Link To Comment
Back when I had my business, the minimum wage had no effect upon my hiring. I hired according to the amount of work I needed employees to do. The only effect a higher minimum wage had was to increase the amount I had to charge for my services. As my "competition" was in the same boat as I was, there are no effect upon how "competitive" my business was relative to that of my competitors. People are hired by business when business needs them. If they are not needed, they won't be hired, even if there was no minimum wage. As for the issue of "training", minimum wage level jobs rarely require very much of it. Either the person is able to do the work or they are not. More complicated jobs always pay more than minimum wage, and employers generally don't do the training as a rule. This is the task of trade schools, colleges, whatever.
2 years ago
2 years ago Link To Comment
So, how much turnover did you have?

The minimum wage affects the quality of your employees. If you pay $9 an hour, and work them part-time at that, you are not going to get many who give a damn about your business, and the history of heavily minimum-age reliant industries shows this. Ironically, these jobs are the most important. One rude cashier can cost you far more business than you think.
2 years ago
2 years ago Link To Comment
While Mr. Obama was lecturing classes on USConstitution in Chicago, Milton Friedman also of the Chicago School of Economics was lecturing on why increasing Minimum Wages damages unskilled labor/while benefitting union labor. This snippet is instructional
http://www.youtube.com/watch?v=ca8Z__o52sk&feature=player_embedded
And, one might add...Milton Friedman was invited to Chile in order to put its economy in order. He did, Chile rebounded gang busters...with his "laissez faire" economics. And this administration would have America go back to the 1500's Guild System of Economics???? Sad. Pray. Amen.
2 years ago
2 years ago Link To Comment
ronald-any sources to back up your statements,or are you just spouting off
2 years ago
2 years ago Link To Comment
Raising the Minimum Wage is only part of the government intervention into the economy. To hire a full-time person you must: Pay the minimum wage, pay FICA, pay Medicare, pay Workman's Compensation, pay Unemployment Insurance, provide mandated Health Care Insurance, provide "Family Leave Act" and hire without any discrimination for Race, Gender, Age, Sexual Preference and don't ask any of the above questions. You are forbidden from asking about their citizenship status, but if they're illegal you will be fined. Oh and if you want to fire them ensure that you have written documentation of their offenses. WHAT COULD POSSIBLY GO WRONG?
2 years ago
2 years ago Link To Comment
The employment facts you point out, plus some others such as union organizing rights, the Americans With Disabilities Act, OSAH regulations, etc., plus the inherent tax advantages are the reasons that most low-skill jobs have simply been eliminated by automation.

Unfortunately, the presence of so many illiegal aliens has brought back the situation that was the original impetus for the Fair Labor Standards Act minimum wage and overtime provisions. Despite attempts to industrialize The South, it had proven remarkably difficult to improve the dismal standard of living throughout The South. The South was caught in a race-based economic death spiral. Whenever a union formed or in other ways working people attempted to improve wages and conditions, the employers simply threatened to bring in black labor and the workers quickly came to heel. Today the only place outside the bar and restaurant industry that minimum wage is really a factor is in work for which there is considerable competition from illegal labor, e.g., agriculture, food processing, and residential construction.

The bar and restaurant industry is vehemently opposed to increases in the minimum wage because few states and the FLSA allow what is referred to as a "tip credit" towards the MW. Few bar and restaurant employees actually make the minimum wage, generally bus help, bar backs, etc. and even they commonly get some share of the wait staffs' tips.

As was the case in The South when the Civil Rights Act and Great Society social welfare programs largely eliminated the surplus black agricultural labor, elimination of illegal labor would quickly result in automation of much agricultural work on the Southern border and in California although that automation might well result in somewhat higher food prices. In the early '60s few Southern farmers would buy a mechanized cotton picker because they could get Black labor for next to nothing, by the mid-70s there was no hand labor in the cotton fields. Likewise, tobacco farming was all by hand and many tobacco farmers still kept a mule to draw a sledge where the hand cut tobacco was placed. By the '70s, there was no hand labor in the tobacco patch. Now, I'll admit that that labor didn't go get a better job somewhere else; for the most part they went on welfare and either moved to the projects or to the city, so the cost was transferred to the larger society, but that is what is happening with the cheap illegal labor seeing so much use today, the larger society is paying the social costs so the employers can get cheap labor.
2 years ago
2 years ago Link To Comment
Let's raise the minimum wage to $900 per hour. Then we'd all be 1%.

It's the new math.
2 years ago
2 years ago Link To Comment
Ah, the ole argument of why not $100, $900, or $10K an hour? One would might counter with why not .25 an hour or a penny an hour as by that same logic, would insure jobs for everyone.

The right once argued that minimum wage hikes resulted in economic downturns but that's been proven false. They've said it cost jobs but we've learned it doesn't. They claim only school kids work these jobs but statistics tell us adults have entered this level by epic proportions. Almost every argument conservatives have thrown out has been debunked.

Such specious arguments as $900 per hour come up short of any merit in the debate and is pretty much akin to saying the dog ate your homework.
2 years ago
2 years ago Link To Comment
Meanwhile back on Earth I we know that government intervention in free markets ALWAYS means higher costs and less productivity. It's axiomatic. All minimum wage increases have ever done is move the entire sliding scale up. People don't have any more real wealth now then they did back when $2.45 was the minimum wage. What a cynical game played on gullible people.

It's all just a game so the Statists can get elected, so they can buy votes, so they can get elected, so they can buy votes...
2 years ago
2 years ago Link To Comment
Mojave et al., my point referenced your argument of raising MW to $900 and hour. That's simply a ridiculous and weak tea talking point that defies logic and has no place in the debate.

The entire issue is about balance or proportion. Most people believe in the concept of a "fair days work for a fair days pay". Most don't believe in exploration or slavery.

Obviously, the minimum wage of $7.75 in today's world is simply unrealistic, especially if you want to eliminate government assistance that tax payers are footing for these low income earners.

You may argue government involvement, regulations, or the impact of MW increases but your $900 an hour has no relevance. If a utility company asks for a 5% increase to cover inflationary cost, to say "well, how about a 1000% then?" has no place in the debate. Many on the right are still asking for lower taxes so why wouldn't a 100% tax break for every worker solve the problem? That doesn't make sense.

2 years ago
2 years ago Link To Comment
The point is pick any arbitrary number, higher or lower, it won't work. The problem is intervention. The price system only works without coercion.
2 years ago
2 years ago Link To Comment
If you manipulate the system, something else gives to compensate. Supply and demand don't suddenly change. Profit margins don't change. So prices go up.
2 years ago
2 years ago Link To Comment
Most employers wouldn't hire more people even if the minimum wage was $1 an hour. You hire the number of people you need to do the work you need doing. I suppose if labor got cheap enough that businesses might use people to do the jobs that are now done by automation. Just as if you could hire people at $1 an hour to cut grass, rake leaves, shovel snow, you wouldn't bother buying the equipment to do it yourself. Heck, make labor cheap enough and every family above the poverty level would have housekeepers, cooks, maids to do the work. But this isn't realistic. As it is, employers hire those they need to do the work. Increasing costs either makes certain forms of work no longer worthwhile hiring people to do, or there is a general rise in prices to make up for the increased labor costs.
2 years ago
2 years ago Link To Comment
However, it can not be worth it to do your work. Part of the problem of benefits is that wages are so low for many people they have to supplement it with government benefits just to live. Or be subsidized, like college students or senior citizens.

No one HAS to do your job, and if the pay is low enough, it may be impossible to even afford the car just to get to the workplace.
2 years ago
2 years ago Link To Comment
" They claim only school kids work these jobs but statistics tell us adults have entered this level by epic proportions."

So these jobs that are supposed to be transitional are now being filled by older, more experienced workers. In other words, underemployment, giving the lie to any government employment statistic.

Your statement above does not debunk anything. Rather it supports the unfortunate fact that a raise in the minimum wage prices younger workers out of the workforce. Where do the young workers go now to learn responsibility, work, earning a wage and the great joy of seeing how much of there property is confiscated by various bureaucracy?

Of course, if the plan is to raise another generation of government dependency, this is a good way to go about it
2 years ago
2 years ago Link To Comment
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