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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."

Rodrigo Sermeño


February 25, 2013 - 12:09 am

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.

Oft-cited research by Alan Krueger and David Card studied employment changes following minimum wage increases and found no evidence that they caused a fall in employment when compared to areas that did not see increases.

The White House cites approvingly another study by Arindrajit Dube, William Lester, and Michael Reich that compared adjacent counties that touch a state border where there is a difference in the mandated minimum wage in each state. Their research also found no negative effect on employment.

Many economists have suggested alternatives to the minimum wage. Milton Friedman supported the idea of a government-guaranteed level of income in the form of a negative income tax in which people earning below a certain amount receive supplemental pay from the government instead of paying taxes.

Others propose increasing the Earned Income Tax Credit (EITC), a government program that provides a payment to workers in low-income households. When the credit exceeds the amount of tax owed, it results in a tax refund to those who qualify. Advocates of this option claim that the EITC encourages people to work over welfare and does not create any disincentives for employers to hire.

One of the major drawbacks of expanding any tax credit programs, particularly at a time when politicians are under pressure not to spend, is that it would increase the federal budget deficit. Nonetheless, many economists believe that raising the living standards through policies like the EITC provides a more effective way of helping the poor without discouraging them to work.

The Obama administration has implemented in the past several tax policies it said would help achieve its goal of helping the middle class.

The administration included the Making Work Pay tax credit in the 2009 stimulus package, which provided a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers. But Congress chose not to renew it in 2011. In 2010, the Obama administration introduced a payroll tax cut that cut employees’ share of Social Security payroll taxes by two percentage points in 2011 and 2012 – which Republicans, and some Democrats, refused to extend into 2013.

The government also expanded a variety of refundable tax credits for low-income workers – notably the Earned Income Tax Credit and the Child Tax Credit – in the stimulus package, and those were extended for another five years as part of the “fiscal cliff” deal.

Obama, who sounds a frequent refrain about helping the middle class, said in his address that for more than a decade wages and incomes have not moved while corporate profits have soared to all-time highs. While in his speech the president urged both Democrats and Republicans to “set party interest aside,” the White House seems intent on pressing Republicans to pursue the administration’s economic agenda.

“If the GOP is opposed to raising the minimum wage, what is their plan to ensure people who work full time don’t live in poverty?” said Dan Pfeiffer, a senior White House adviser, in a tweet last Wednesday.

Most recent increases in the minimum wage occurred when the economy was expanding, and therefore Republicans did not push back as much. This time, in the midst of a weak economic recovery, the administration will likely have a hard time convincing Congress to raise the minimum wage.

House Majority Leader John Boehner (R-Ohio) signaled in his comments to reporters last Wednesday that Obama’s proposal would have a small chance of passing the House.

“When you raise the price of employment, guess what happens? You get less of it. At a time when Americans are still asking the question, ‘where are the jobs?’ why would we want to make it harder for small employers to hire people?” Boehner said.

Rodrigo is a freelance writer living in Washington, D.C.

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All Comments   (22)
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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...)
1 year ago
1 year 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.
1 year ago
1 year 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.
1 year ago
1 year ago Link To Comment
"wages have stayed flat"

And the data used by the democrats is always the income wealth disparity gap. I would invite everybody to take a good look at those charts especially from the 80s to the present. If anybody doesn't see a real problem then, I suggest they are blind to reality.

But again, the real problem is that of systemic and circular arbitrary inflation that has become non competitive and unsustainable in todays 'global' economy. A monetary system that has no real value other than an arbitrary value becomes a disater that.........
1 year ago
1 year ago Link To Comment
Wages have long been a component of calpitalist corruption began by the labor unions.

For those old enough to remember the old 33 1/3 rule that use to be the standard for most all domestic workplace commerce, you will remember that 'arbitrary' wages was hardly ever a disicussion in most workplaces. The big challenge back then was how to increase market and sales thus, increasing income for every component in the chain. Labor was a component of fixed percentages of gross revenue. As the revenue grew, employers either added employees or increased the exisiting employees wages and or benefits and bonuses. Then it began to get all corrupted from the 60s forward.

Consolidation of industries began to play into the hands of organized labor giving them an inordinate amount of leverage and power over those consolidated industries. Their arbitrary wage and benefit demands and its consequences, has since trickled down to every form and size of business in the U.S. today. As a consequence, it began the arbitrary and circular inflation of goods and services we have today. Now we have both industry and labor corrupted by greed causing inflation that eventually becomes unsustainable.

At the end of December 2012, $12.00 had the same buying power as $1.43 in 1950. The only other variable in this example is from the 80s when the Fed reserve began to fire up the printing presses spitting out fiat dollars to regulating market volitility as the government expaneded its global economic strategies which continues today at a dangerous and unsustainable level.

Our inflation rate (labor included) has already proven to be non competitive in the global marketplace and here we are increasing that divide even more with larbor rate increases while continuing to teeter on the brink of still mkore economic woes ahead. The problems for the old traditional capitalist nations are continuing to be a real threat going forward as unsustainability looms!
1 year ago
1 year 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.
1 year ago
1 year 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.
1 year ago
1 year 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.
1 year ago
1 year 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
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.
1 year ago
1 year ago Link To Comment
ronald-any sources to back up your statements,or are you just spouting off
1 year ago
1 year 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?
1 year ago
1 year 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.
1 year ago
1 year ago Link To Comment
The real reason the Dems want to raise the minimum wage is because a number of union contracts have wages set to a multiple of the minimum wage. Raise the minimum wage, and a lot of union workers who are already above the minimum wage get an automatic raise in pay.

Sorry, not interested.
You want to raise the minimum wage? Do it as part of a law that makes it illegal for a union contract to base wages on the level of the minimum wage.
1 year ago
1 year ago Link To Comment
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