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

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.