When President Obama proposed hiking the federal minimum wage to $9 an hour last week, he began a policy fight over an issue with broad popular support but widespread business opposition.
Supporters say the raise, the first since 2009, is overdue, is hardly lavish and will boost the economy. Opponents, including House Speaker John Boehner, said it will raise prices and cost jobs.
Both sides have polished arguments and point to studies supporting their views. There are, however, a few objective facts:
– A total of 20 states, including Ohio, have already raised their minimum wage above the federal minimum of $7.25 an hour for jobs that don’t rely on tips.
– Ten of those states, including Ohio, have indexed their minimum wages to increase with inflation.
– The buying power of the federal minimum wage has risen and fallen with time and inflation, but is now far below where it was in 1968, when it was $1.60 an hour. If the minimum wage had been indexed to inflation then, it would now be $10.65 an hour.
– Of 3.2 million hourly workers in Ohio age 16 and over, 150,000, or 4.7 percent, are paid at or below minimum wage, according to the U.S. Bureau of Labor Statistics. That compares to a national average of 5.2 percent.
Almost everything else is subject to dispute.
Business groups tout free market
Chris Kerschner, vice president of public policy and economic development for the Greater Dayton Chamber of Commerce, said the Dayton chamber is — and has always been — philosophically opposed to federal wage mandates.
“It’s not because we don’t think people should be paid a fair salary for the work that they’re doing,” Kerschner said. “It’s just we believe that free-market competition should determine what the salaries are and not government mandates.”
If two businesses decide to set different wages, he said, employees are free to leave one and go to the other.
“But when there’s mandatory wage requirements, that restricts an employer’s ability to be able to run their business the best way they see fit. And that causes concern to us at the chamber.”
Kershner said the organization would be lobbying lawmakers to oppose the wage hike.
Michael Strain, of the right-leaning American Enterprise Institute, wrote a rejoinder to last week’s State of the Union entitled “Now is not the time to raise the minimum wage.” It cites studies saying a raise would lead to job loss.
“Ideally our government would be implementing policies to help workers get jobs,” Strain wrote. “But surely the government should not actively increase the cost of hiring workers. An increase in the minimum wage would do exactly that by design.”
Mark Peebles, president and founder of the OinkADoodleMoo barbecue chain said an increase in the minimum wage will harm restaurants already struggling in a market where disposable income is tight.
“We operate on very thin margins, so every time the minimum wage gets raised, it does impact us,” Peebles said. “Honestly, the only way we can do it is to pass it along to the customer. It doesn’t just drive up costs of the industry, it affects everybody. Those increases, they add up over time.”
Peebles, who also sits on the board of the Ohio Restaurant Association, said about half of his company’s 25 employees receive minimum wage.
“I realize it’s hard for somebody to live on minimum wage,” he said.
But he said minimum-wage jobs are good for some segments of the work force, including high school and college students and stay-at-home moms looking for extra income.
Raising the wage, Peebles said, “actually hurts people making minimum wage in the first place because it costs them more to take their family out to eat. Having the government legislate that we have to pay out more affects even those young people who want to go out to eat, go to the movies.”
Advocates: Policy would boost economy
Advocates, however, say the hike will not only help workers who are struggling the most, but that it will also boost the economy. And, they say, it has the support of a broad coalition of voters.
A nationwide survey of likely voters conducted last February by Lake Research Partners found better than 3-to-1 support for increasing the minimum wage. Close to 70 percent supported the move while 22 percent opposed, with a margin of error of 3.5 percent.
In 2006, just before the minimum was raised the last time, a Gallup poll found 83 percent approving a hike while 14 percent opposed.
Doug Hall, a Washington-based director of the Economic Analysis and Research Network, has co-authored a study that found a raise to $9.80, as was proposed last summer by Sen. Tom Harkin, D-Iowa, would have resulted in raises to 28 million workers, would have boosted the economy (Gross Domestic Product) by close to $40 billion and would have created about 100,000 new jobs over the three-year phase-in period.
Although the president’s proposal doesn’t go as high, Hall, whose organization is part of the left-leaning Economic Policy Institute, said his preliminary estimates show a boost to the economy of between $12 billion and $14 billion, and an increase of at least 100,000 jobs.
That many jobs is a drop in the bucket for a country with a job deficit of 12 million, he said, “but the most significant thing about that number is that it’s not negative.”
The most immediate effects of a minimum wage hike, Hall said, would be to improve the lives of those at the bottom of the pay scale and allow them to spend more money in the local economies on the things they need.
“First, and the most obvious, it puts additional money in the hands of the very folks who are the most vulnerable and have been struggling the most. For those folks, an extra $1 an hour or $1.75 an hour that turns into real money, that’s pretty significant.”
Balancing job losses with increased income
John Blair, professor of economics at the Wright State University’s Raj Soin College of Business, said the arguments boil down to two conclusions.
1. It will raise labor costs, and therefore, reduce jobs.
2. It will raise labor costs, and help a lot of people who make very low wages.
“The question becomes, which effect is greater and how do they balance out?” Blair said.
Most research, he said, shows that when employers decide to hire people, they aren’t “very sensitive” to the minimum wage. But, he said, there would be some job loss.
“I think that most of the people who advocate for the low-income worker would favor raising the minimum wage,” Blair said. “Even though some people would be hurt, the people who would gain, their gains will outweigh the costs of those who are hurt.”
Blair, who said he doesn’t have a strong position on the proposed minimum wage increase, said claims that those at the bottom of the wage scale can shop around in a free market ignore the problems that many of those folks have.
“Many of them are just not very adept at using the market to better themselves,” Blair said. “In an extreme case, you might think of somebody who is handicapped, or maybe who’s bound by family responsibilities. They’re just not in a position to go out and look for other jobs and move to where the job market may be better.”
Elthia Foster of Dayton’s Five Oaks neighborhood knows the struggle all too well.
Even at the $9 an hour she makes as a part-time home health aide, she said, “it’s pretty rough, with three kids and a home.”
“It’s hard for single mothers like me,” said Foster, 38, who is raising children ages 4, 7 and 16. “All I can do is keep going to work and try to maintain. I can’t sit down and wait for it to come to me. It’s not going to happen like that.”
An aide since 2008, Foster said she likes her company, her supervisor and her work, helping the elderly stay out of nursing homes by providing in-home care. “I can’t complain about my job. I love my job — it’s my passion.”
But her pay rate is such that she has a hard time juggling her rent and utility payments. She said she doesn’t get child support or public assistance except for food stamps. She stretches her income by using the food pantry of Catholic Social Services to help feed her family.
If she were paid minimum wage, she said, “it would be much harder. I used to make minimum wage — I know.”
Above minimum wage
Areas with minimums higher than the federal minimum of $7.25 per hour:
State/City Min. wage
Washington, D.C. $8.25
Rhode Island $7.75
New Mexico $7.50
Source: U.S. Department of Labor
Distributed by MCT Information Services