Federal minimum wage: $7.25 or $9 an hour?

 Moderated by Rick Badie

Proponents of President Barack Obama’s proposal to raise the federal minimum wage from $7.25 to $9 an hour say it would bode well for business and the overall economy. Opponents label the rate increase a jobs killer that would hurt small business owners. Should Congress boost the minimum wage? We present four views on the matter.

Wage hike bad idea for many reasons

By Kyle Jackson

President Barack Obama in his State of the Union address called on Congress to raise the federal minimum wage to $9 an hour and allow automatic increases in the future based on inflation.

This is a bad idea.

Supporters say raising the minimum wage would help the working poor keep up with the cost of living. The truth is that an arbitrary increase inevitably hurts the people a wage increase is meant to help — young people, first-time workers and those with no or limited skills.

Last spring, Robert Nielsen, an assistant professor of housing and consumer economics at the University of Georgia, co-authored a study that found that increasing the minimum wage doesn’t do anyone much good.

“Regardless of who is looking at it, minimum-wage increases nearly always result in null findings — almost no one finds any positive effects for helping families through minimum-wage increases,” he wrote. “As a policy tool, it doesn’t reach the right people.”

Nielsen’s study, written with Joseph Sabia, an assistant professor of economics at San Diego State University, said raising the minimum wage doesn’t help the working poor. It found that most of the people earning minimum wage aren’t family bread winners. Most aren’t actually poor. Roughly nine out of 10 workers who benefited from the last minimum-wage increase lived in households with incomes that were at least two times greater than the poverty line.

The study also found that half of poor Americans between the ages of 16 and 64 don’t work, so a wage increase won’t affect them at all.

What a mandatory wage increase would do is hurt employers, especially small-business owners who don’t make big profits and aren’t sitting on huge piles of cash. When you have to pay more for labor, you can’t afford to hire as many workers.

The U.S. jobless rate may be lower than it was at the depth of the recession, but at 7.9 percent, it’s still almost double what it was in early 2007, before the economy tanked.

Small businesses are wary of investing in workers right now. Each month, the National Federation of Independent Business releases its Small Business Optimism Index. Over the past several years, our members haven’t been very optimistic.

A survey released this month found that small-business owners are still worried about the economy. They say this isn’t the time to expand. This isn’t the time to hire.

While we all hope the economy picks up quickly, we also know small business is looking at increased costs.

Energy prices continue to increase. Health insurance premiums remain on the rise. Unemployment insurance costs are going up. Workers’ compensation premiums are steadily increasing. Small businesses are under the constant threat of new taxes.

Politicians who can’t seem to balance a budget have no business telling people how much to pay employees.

Kyle Jackson is state director of the Georgia chapter of the National Federation of Independent Business.

The good and bad of a pay hike

By Barry Hirsch

The proposed increase in the minimum wage to $9 by the end of 2015, then indexed to inflation, is a reasonable proposal. Opponents exaggerate the costs; proponents exaggerate the benefits. A higher minimum wage will modestly slow the creation of low-wage jobs and businesses built around low-wage work. That said, much literature finds that employment losses are small in response to minimum-wage increases, with many studies failing to find negative employment effects.

A higher minimum wage will bolster the incomes of low-wage workers, strengthen worker attachment to jobs, modestly reduce inequality, increase the dignity of work, and enhance public perceptions of fairness in the workplace. Many business owners oppose minimum-wage increases. As with other cost increases, profits initially decrease. Over time, costs are largely shifted to consumers through higher prices, which in turn constrain sales and limit growth. Pegging the minimum wage to the cost of living will maintain its value to workers over time and provide greater certainty to businesses. One can quibble over whether it should be tied to wage rather than price growth. Wages typically grow faster than prices, although such real wage growth in recent years has been limited.

Although an increased minimum wage provides benefits, it’s not a cure-all. Many low-income households have no workers. Many low-wage workers do not live in poor households. Minimum wages reduce earnings inequality by creating a wage floor for those at the bottom. But recent increases in wage inequality have not resulted primarily from deterioration at the bottom of the distribution. Rather, inequality has increased due to large losses in traditional middle-class jobs and growth in compensation at the top of the distribution.

For more than two decades in both the U.S. and other developed countries, employment shares have increased among low-paying and high-paying occupations while declining in many middle-class occupations — particularly in production, operative, and office and administrative support jobs where tasks are routinized and thus programmable.

A higher minimum wage does little to reduce inequality resulting from such losses. Increased inequality has stemmed primarily from technological change, increased globalization — the flow of goods, investment and people across countries — and, to a lesser extent, declining private sector unionization (unions typically compress wages from top to bottom). A wage increase is not a free lunch, but it does provide sufficient social nourishment to justify its costs.

Barry Hirsch is an economics professor at Georgia State University.

Increase minimum wage, boost workers

By David Madland

President Barack Obama’s proposal to raise the minimum wage to $9 an hour would help ensure workers are rewarded for their work, support millions of people striving to enter the middle class and strengthen the economy by increasing workers’ purchasing power.

Some policymakers may be nervous about increasing the minimum wage because of inaccurate claims from opponents. The evidence is clear: Modest increases in the minimum wage do not result in job losses, even during hard economic times.

At least five different academic studies that focus on minimum-wage increases made during periods of high unemployment — with peak unemployment rates ranging from 7 percent to 12.3 percent — find an increase has no significant effect on employment levels. These studies use a range of research methods, from small case studies to large econometric analysis, which lend great credibility to their findings. Most recent studies are considered by economists to be significant improvements over all previous studies because of the methodology.

That the minimum wage doesn’t have the negative effects its opponents claim can also be seen from a quick look at the employment growth after recent increases. Over the past two decades, the minimum wage has been raised dozens of times in states across the country. On average, these states saw job growth that mirrored the national average, with most states with wage increases doing slightly better.

Increasing the minimum wage reduces costly turnover and helps increase productivity by encouraging workers to stay on the job and learn additional skills. It encourages employers to compete on a more level playing field, pushing firms away from a low-road, low-human-capital investment model to one where workers stay attached to the workforce and employers make stronger training investments. Where weak consumer demand is holding us back, raising the minimum wage increases workers’ incomes and which enables them to purchase additional goods and services, which has a ripple effect throughout the economy.

The evidence is quite clear that millions of workers will benefit from a minimum-wage increase, with the increase translating into real dollars for groceries, gas and school supplies for millions of the men and women earning hourly wages. Just over 15 million workers who earn less than $9 per hour would directly benefit from the president’s proposal. An additional 7.5 million would see their wages increase through a spillover effect.

With the cultural shift of women comprising an increasing share of the U.S. workforce, raising the minimum wage is an especially important policy step to improve the lives and livelihood of women and their families. Most minimum-wage workers are women, and women are two-thirds of our country’s breadwinners or co-breadwinners.

In short, policymakers should feel confident that raising the minimum wage would not have harmful employment effects.Instead, it would help workers and their families and provide the kind of boost in consumer demand our economy sorely needs.

David Madland is director of the American Worker Project at the Center for American Progress.

Pay hike prices Georgia teens out of  workforce

By Michael Saltsman

It’s tough being a Georgia teenager in search of a job. The Bureau of Labor Statistics reports that Peach State teens faced a 29.6 percent unemployment rate in 2012, one of the highest in the nation.

Unfortunately, President Obama’s State of the Union proposal to raise the federal minimum wage by 24 percent stands to make the situation worse. The president denies this, citing a University of California-Berkeley study to argue that jobs won’t disappear after a minimum wage increase.  Activists from coast to coast have picked up on the message. Some have gone so far as to claim that new labor costs mean new jobs. But 85 percent of credible economic studies on the minimum wage point in the opposite direction. They confirm wage hikes hurt the employment prospects of the least-skilled.

The White House and its supporters look a bit foolish standing on the opposite side of this consensus, especially with the recent evidence from the 2007-2009 federal wage increase. The minimum wage spiked 40 percent from $5.15 to $7.25. Economists at Miami and Trinity University estimate some 114,000 young adults were priced out of jobs as a result.

Worse yet, teen unemployment has remained above 20 percent countrywide for more than four years, a record since the Labor Department started tracking these numbers. You don’t need to have a Ph.D. in economics to understand why teens would feel the pinch from a wage mandate.

 The businesses at which they are most likely to work face thin profit margins of roughly 2 or 3 cents from every dollar.  Mandated increases in labor costs can’t be absorbed with margins like these. Businesses instead have to offset the cost through raising prices, or more likely, by providing the same product with less service. That means more customer self-service, and fewer opportunities for the people who used to fill those jobs.

Losing these jobs means losing the bottom rung on the career ladder. The skills that teens pick up in these first years in the workforce are invaluable. From teamwork to timeliness, the foundations of a successful professional life are often learned flipping burgers or waiting tables.

So here’s a tip for legislators from Georgia and elsewhere who are considering the president’s plan: Don’t price your kids out of the jobs they need. It’s better for them to start at the bottom of the wage scale than to never start at all.

Mark Saltsman is research director at the Employment Policies Institute.

27 comments Add your comment

l

February 27th, 2013
7:30 am

The high end wage earners are being taxed at a higher rate now with the new tax increases. $100s more come out of each pay check. On the other end of the spectrum, minimum wage earners are receiving more, or will receive more with a higher minimum wage. The two extremes are coming closer together, making what I call a classless society. Now the high end wage earner I know received 8 years of higher education so that he could have a better living. He says, “what is the incentive to excell if the people with out an education can do as well as he is?”
Every worker should be paid on their own merit, what they can do and how much the employer thinks it is worth. Great countries prosper because of the ingenuity of their citizens.

GB101

February 27th, 2013
6:23 am

In addition to seeing this illusory strengthening of the economy, Madland also ignores two of the arguments made by the first two contributors. One, many minimum wage earners are not poor; and, two, most poor people don’t work at all.

GB101

February 27th, 2013
6:19 am

“The evidence is quite clear that millions of workers will benefit from a minimum-wage increase, with the increase translating into real dollars for groceries, gas and school supplies for millions of the men and women earning hourly wages”

Here Madland gets more specific about the way raising the minimum wage strengthens the economy. I will use the extra money to buy groceries, gas, and school supplies. But what was my employer going to do with the money before he gave it to me? Now he has less money to buy groceries etc. than he did before, doesn’t he? Is it more beneficial if I spend the money on school supplies than if he spends it on office supplies?

GB101

February 27th, 2013
6:13 am

“President Barack Obama’s proposal to raise the minimum wage to $9 an hour would help ensure workers are rewarded for their work, support millions of people striving to enter the middle class and strengthen the economy by increasing workers’ purchasing power.”

Let’s consider the argument that increasing the minimum wage strengthens the economy by increasing workers’ purchasing power. Doesn’t seem logical to me. Say I am an employee earning 7.25 per hour. The minimum wage goes up to 9.00. So in my first hour of work next week I make an extra 1.75, but productivity did not increase, did it? No more wealth was created that hour Monday than on my last hour the previous Friday. The money was taken from my employer and given to me. How does my having this 1.75 strengthen the economy? How does my having this money at my disposal provide some benefit to the economy that is not provided if my employer has the money at his disposal?

Suppose another law were passed requiring me to give this 1.75 to someone else. Would this strengthen the economy again, as the economy was strengthened when the law required my employer to give it to me?

Suppose some more. If transferring 1.75 to me strengthens the economy, wouldn’t it be better to raise the minimum wage to 10.75 and double the strengthening effect?

Matt321

February 26th, 2013
10:38 pm

“So here’s a tip for legislators from Georgia and elsewhere who are considering the president’s plan: Don’t price your kids out of the jobs they need. It’s better for them to start at the bottom of the wage scale than to never start at all.”

Sure. That’s why wealthy American families like the Kennedy’s, Romney’s, Bush’s, etc., are known to put their kids in dead end jobs as teenagers – to give them important skills. What a load of baloney. If you want your teenage kid to succeed, here’s a hint – college or trade school. You know. A place to learn skills that take longer than five minutes behind a register that has pictures of food on it.

Point/Counterpoint

February 26th, 2013
9:22 pm

@USMC…we all know that minimum wage is not meant to raise a family on but the reality is that in Georgia, workers have no protection at all. You are on the job for 20+ years and the company lets you go in favor of younger, cheaper workers and before you reach an age to draw a pension. You’ve been working for 20 years and have a family and a mortgage. the only job you can get pays $7.25 an hour. You can’t live on that and what do you suggest should be done about thatpesky family and mortgage.

USC-69

February 26th, 2013
7:50 pm

The A.J.C. recently reported the salaries of 13 C.E.O’s totalling one-half billion dollars. Can these gluttons argue about a $3,640 annual raise for an employee? Disgusting. Time for some major hair-cutting in the board-room. If the Board does not have the cojones, then the stock-holders and patrons must use their own veto power to begin to create some justice in this increasingly corrupt marketplace. Right to work states have evolved in the old South to replace slavery, which is what the current entry level employment has become. The workers always eventually rule.

Progressive Humanist

February 26th, 2013
6:02 pm

Every time the issue of raising the minimum wage comes up Republicans argue that it will hurt businesses and will increase unemployment because businesses will hire fewer people. Because the minimum wage has been increased multiple times over the years we can actually look back at the existing data to see if that is true. It’s not. From the first time the minimum wage was enacted and each time it has been raised, never has there been a subsequent spike in unemployment or a negative impact on businesses. What has hurt the economy has been CEOs and upper management taking an increasingly larger percent of the pie while workers’ wages have remained stagnant for 30 years, leaving the common workers without the buying power to keep businesses thriving. If people have more money to spend they will spend it, which helps business.

Bernie

February 26th, 2013
5:51 pm

This President has skillfully outflanked those the Right and turned the table on an issue that is totally INDEFENSIBLE no matter what lens it is viewed from.

Every American deserves a Living Wage. Who could stand, against such a position? Only a FOOL!

USMC

February 26th, 2013
5:39 pm

“Federal minimum wage: $7.25 or $9 an hour?”

The unintelligent Leftwing Socialists don’t understand that MINIMUM wage is NOT meant to raise a family on.