In perhaps the "most controversial proposal" in Tuesday night's State of the Union address, President Obama called for raising the federal minimum wage from $7.25 to $9 an hour. "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. "Let's declare that in the wealthiest nation on earth, no one who works full time should have to live in poverty." The White House says that raising the minimum wage would improve the lives of millions of people, from cooks to store clerks to health-care aides — while placing only limited burdens on employers.
Worker advocates argue that hiking the minimum wage would boost the economy by putting more money into the pockets of lower-income Americans likely to spend it right away. A 2011 Federal Reserve Bank of Chicago study found that minimum-wage workers increase spending by $2,800 a year for every $1 increase in the minimum wage. That helps everyone, Christine L. Owens, executive director of the National Employment Law Project, tells CNN. "One of the best ways to get the economy going again is to put money in the pockets of people who work, who will spend it at small businesses in their communities," Owens says. "A minimum wage increase will stimulate consumer demand and help drive economic growth for the people who most need it in America — workers."
Conservatives aren't so sure. "History shows that mandated minimum wage hikes often lead to massive job loss," says Cheryl K. Chumley at The Washington Times. In fact, economists at Cornell and American Universities have estimated that a minimum wage hike like the one Obama is proposing would eliminate 467,000 jobs or more, by forcing small businesses with limited payrolls to limit hiring or lay off workers so they could afford to pay higher wages to those lucky enough to stay.
Actually, the argument that minimum-wage hikes kill jobs is a tired old "canard," says Timothy Noah at The New Republic. There's a growing body of research (conducted by Alan Krueger, chairman of the Council of Economic Advisers, and others) showing this just isn't the case. "That's probably because whatever increase a minimum-wage increase brings about in the cost of hiring is offset by an increase in economic efficiency attributable to a drop in turnover and an increase in productivity. When you pay workers a decent wage — imagine this! — they give their employers better value."
Regardless, Obama's $9 minimum wage is unlikely to fly, predicts Michael Babad at Toronto's The Globe and Mail. This proposal is sure to run into significant opposition from Republicans who see the measure as an anti-business move that would kill jobs, something the U.S. can "ill afford" as the recovery inches along. Obama knows this, as he pitched an even greater increase, to $9.50 an hour, during his 2008 campaign, and "nothing ever came of that."
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