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

MrLiberty

February 27th, 2013
3:59 pm

The proposed increase is roughly 25%. If the price of something at the market goes up 25% are you likely to change your buying habits? What if the price of a car went up 25%, or a house? Similarly, what if the price of those items went DOWN 25%. Would that change your buying habits?

Why does anyone think that labor is immune from the first law of economics?

If you are worth $9 then you will be paid $9. If you are worth $6 an hour, you will not be hired for $7.50 or $9 certainly. But why are you not allowed to sell your labor for $6? Why does the government, Obama, etc. want you to starve, go homeless, etc.? Why do they not want you to get the opportunity to gain work experience despite your current lack of skills?

Everyone says that the minimum wage hike helps the poor, but it hurts the least skilled the most. Before the minimum wage, black unemployment was lower than that of whites. Now it is more than double with young unskilled blacks (and whites for that matter) suffering rates over 25%.

How does it help to tell someone that they have NO right to value their labor as they see fit. By what authority does the government criminalize employment?

Scooter

February 27th, 2013
3:15 pm

So, prices of household consumables have been going up for 3 to 4 years and unemployment remains stubbornly high… the President’s solution; make employers pay unskilled workers even more. Does he think the bosses are going to cut their pay to make up for it, raise their prices, or employee fewer people? No, he has to be smarter than that. He knows it is simply good community organizing of his populist base that feeds on emotions like envy, animosity and a quest for “social justice”. Since I am still unaware of his many accomplishments in Chicago, I have to assume that’s the stuff that got him into the White House.

Funny

February 27th, 2013
2:58 pm

If the minimum wage goes up companies will have to raise the price of their product to get the money to pay the raise. As a result everything we buy or use will go up. With everything costing more the people really hurting will be the people who were already making a little over $9 an hour. Do you really think they will get a raise?

xxx

February 27th, 2013
2:47 pm

If that is the case MM, you shouldn’t have to hide. Gutless.

SAWB

February 27th, 2013
2:20 pm

Mr. Obama needs to focus his efforts on growing the size of the entire pie instead of attempting to evenly divide that pie. The way to increase wealth in society is not to redistribute the existing riches, but to stimulate the economy to produce more wealth. While working on his various pet projects Mr. Obama has done little to improve the economic positions of most Americans.

Marlboro Man

February 27th, 2013
2:10 pm

In the past when increased, jobs didn’t go away. Crybaby.

xxx

February 27th, 2013
1:28 pm

Raise it for all I care, just have the guts to tell the folks that end up being casualties that their job loss was for the greater good.They should be proud to be unemployed so some other person can make an extra 1.75.