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Would Obama's $9 minimum wage help or hurt workers?

President Barack Obama (C) delivers his State of the Union speech before a joint session of Congress at the U.S. Capitol on February 12, 2013 in Washington, D.C.

From climate change to the federal deficit, President Barack Obama covered a lot of ground in his State of the Union address Tuesday night. But he got very specific when addressing minimum wage.

“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 $9.00 an hour,” he said.

The $1.75 raise from the current hourly rate would affect about 15 million people, according to the White House. Additionally, President Obama wants to tie the minimum wage to the cost of living.

That’s the part of his speech that struck Heidi Shierholz, an economist at the Economic Policy Institute.

“Minimum workers are one group of people in this country who literally have to wait for an act of Congress to get a raise,” she says.

She adds that by making future increases automatic, the government could take a “fix it and forget it” approach that would benefit that entire economy, because when people have more money in their pockets, they spend more.

But there are two sides to this argument.

Unemployment is still hovering around 8 percent. That shows companies have been slow to bring on new workers.

“You have to worry about whether firms are close to the margin of letting workers go anyway,” says Hoyt Bleakley, a professor at the University of Chicago’s Booth School of Business. “It’s going to be hard to encourage them to hire people if what we’re doing is cranking up what they’re required to pay workers.”

He says companies may decide that workers who are worth $7.25 per hour now might not be worth $9.00 an hour.

But Paul Sonn, the legal co-director of the National Employment Law Project, says the President is following the lead of many states legislatures.

“Since the recession, there’s been a surge activity in the states [around minimum wage],” Sonn says.

Nineteen states have minimum wage requirements that are higher than the federal rate. Washington State is the tops the list at $9.19 an hour.

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Bruce I agreed with you completely. I own a small business with my wife in Oregon and none of our employees make less than $10.00/hr. Like you we also offer health insurance and IRA's for all full time employees and I firmly believe that all of these costs are totally offset by low turnover (read NO turnover), much more motivated employees that provide better service to our clients and are much more productive than minimum wage employees. Every economy advances not solely with lower wages but with higher levels of productivity and I can state unequivocally that higher wages attract better, higher skilled and more motivated employees. Plus I sleep better at night knowing that we are offering a living wage.

I remember my first job flipping burgers in high school for $1.25 an hour. There were four of us working the kitchen. Then the drive-in did enough business in one year that the owner/manager had to pay minmum wage. Pay went up to $2.20, and the staff dropped down to 3 in the kitchen, and on a slow night one of the three would be sent home early. More work for each worker. fewer workers, fewer hours for those of us still on the job.

Change the numbers above and you will see more of the same in the future.

Except that now instead of high schoolers learning about the relationship between work and pay, those jobs are being done by adults making ends meet.

There is something to be said for a system that allows a young person to get a first job.

I agree with Fred Mann's suggestion; however, he does not go far enough. Let's raise the minimum wage to $83.65 per hour. This will permit the most menial workers in the country to earn the same amount as rank-and-file members of the U.S. Congress and Senate. Peg the minimum wage to increase every time Congress gets a pay raise. I doubt if any of our representatives or senators work as hard or under conditions as difficult as our minimum wage earners.

Just imagine how much wealthier our country will be once we implement this modest proposal.

I see it that if the minium wage is raised the the cost of living will go up just like it did when they raised it the last time and all that did was bring more people to the poverity level

Should the minimum wage be raised?

Wrong question. The minimum wage should be eliminated. It's just one of many ways in which government interference distorts the free market. You can not force improvements in the economy by arbitrarily setting prices (of products, or labor). This is called a command economy; and the recent history of Eastern Europe has clearly shown that not only does it not work, it destroys an otherwise healthy economy. Any economist who says otherwise needs to temper their theory with a little reality.

Overall such distortions hurt everyone; in this case by forcing up prices and eliminating jobs. Any tiny increase in spending by a very small number of people is obviously totally insignificant by comparison.

And making increases automatic is clearly a case of "break it, and try to forget it"; it makes it more difficult for people who actually understand economics to at least try to re-debate this question in the future.

Minimum wage workers are typically in the service industry. These jobs can't be offshored for the most part. Raising the minimum wage would force those businesses to raise their prices in order to maintain the same level of service, but it would be much more palatable if all of their domestic competition was in the same boat. Could the higher cost of service reduce demand? That is where the debate should be. It is possible that there would be some reduction in consumption of luxury goods and services. This would be offset by greater demand from minimum wage workers with more money in their pockets. It is just the right thing to do, and an appropriate use of government to create a fair playing field in the market.

If minimum wage did no harm, why not raise it to 50 dollars an hour?
Minimum wage always causes increased unemployment in those with least amount of skills. That's why unemployment is so high in the teen and Latino demographics. that's also why many states have minimum wage exceptions for employees with mental and physical handicaps.
To put in general terms , if an employee is only worth X dollars to an employer, and minimum wage is X dollars plus 1, that employee will be fired or not hired in the first place.
This is so obviously true, I can't believe it's even up for debate.

As a small business owner (with 6 employees), I am unambiguously in favor of raising the minimum wage to $9.00 per hour. I have one employee at minimum wage, and I'm happy to raise his hourly wage, but I can't do it when I'm competing against companies using cheap labor (and illegal labor).

It's the free rider problem. I would love to pay my employees more, but I can't do it if other companies can undercut my prices by underpaying their workers.

I agree, mostly. I have 9 employees and I'm about to hire another. I wouldn't consider paying anybody less than $9/hr and that would be while I was teaching him his job. Even order pullers in the warehouse make a lot more than that - if you want to hire a quality employee. I also offer generous health insurance and contribute to an IRA for all my employees. It's not just the right thing to do, it pays for itself in loyalty and the quality of the worker I can keep.

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