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Minimum Wage Proposal Renews Economic Debate

Kevork Djansezian/Getty Images
About 3.8 million people, or 3 percent of the overall workforce, earn at or below the minimum wage (waiters and those in other professions who earn tips or commissions are sometimes paid less than the minimum wage), which is down from almost 8 percent of the workforce in 1979, according to the Bureau of Labor Statistics.

By calling for an increase in the minimum wage during this month’s State of the Union address, President Barack Obama waded into a long-running debate among labor economists, with some saying the proposal would raise incomes and others countering that it would lead to decreases in employment.

In his speech, Obama said the minimum wage should increase from $7.25 an hour to $9 an hour by 2015 and be indexed to inflation. That would bring families out of poverty and reduce the widening gap in incomes, he said.

“No one who works full time should have to live in poverty,” he said. “Working folks have to wait year after year for the minimum wage to go up while CEO pay has never been higher.”

The minimum wage was last raised at the federal level in 2009. Since increases don’t account for inflation, Congress must periodically boost the pay floor.

But Obama’s proposal is relatively modest and would have relatively little effect — either positive or negative — on the economy. Economists say it would not bring a huge number of people out of poverty and its effects would not be evenly distributed across industries and regions.

“I would be surprised if it had any measurable effect on poverty whatsoever,” said Michael Strain, an economist at the American Enterprise Institute.

And while the president’s plan would increase the incomes of the lowest-paid workers, it wouldn’t have much of an effect on the widening income gap because that gap is mostly driven by top earners outpacing everybody else.

“So much about our dynamics of income inequality have been about the very top,” said Heidi Shierholz, a labor economist at the Economic Policy Institute. “This is not going to have a huge impact on that dynamic of the top pulling away.”

About 3.8 million people, or 3 percent of the overall workforce, earn at or below the minimum wage (waiters and those in other professions who earn tips or commissions are sometimes paid less than the minimum wage). That’s down from almost 8 percent of the workforce in 1979, according to the Bureau of Labor Statistics.

Still, the White House estimates that raising the minimum wage to $9 per hour would raise the salaries of 15 million workers because those who currently make between $7.25 an hour and $9 an hour would get a raise. Employers who now pay slightly more than the minimum wage would also bump up salaries.

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