By Emily Cheatham |Staff writer
In his 2013 State of the Union address, President Barack Obama called on Congress to raise the federal minimum wage for workers from $7.25 per hour to $9 per hour. In the year that followed, Congress took no formal action on the issue.
It’s 2014 now, and U.S. Sen. Tom Harkin, D-Iowa, has introduced legislation that would raise the federal minimum wage to $9.80 within two years. The legislation calls for the required pay rate to increase each year by the same percentage that the federal Consumer Price Index rises. The Consumer Price Index is a program that produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services, according to the U.S. Bureau of Labor Statistics.
The bill has three main components: raise the federal minimum wage to $10.10 per hour by 2015 in three steps of 0.95 cents each, adjust the minimum wage to keep pace with the rising cost of living starting in 2016, and raise the minimum wage for tipped workers to 70 percent of minimum wage. For those who earn tips, the federal minimum wage currently stands at $2.13 per hour.
So how would a higher minimum wage affect the U.S. economy?
Studies on both sides of the political spectrum have produced findings that contradict each other. Proponents of a minimum wage increase argue it would help the economy by putting more money in the hands of average workers who, in turn, would spend it, fueling more economic growth. Critics argue it will hurt the economy because employers won’t hire as many workers because those employees now cost more to employ and employers may need to increase the price of their goods and services to make up the cost of higher wages.
No economic study has definitively put the issue to rest and shown increasing the minimum wage would benefit or adversely affect the U.S. economy. Studies done by economists at Berkley University, the London School of Economics, and University of California – Irvine found results ranging from an increase in employment, to no effect, to a decrease in employment. Studies done by the University of Kansas School of Business, and public policy group Demos, have also noted that there would be no significant price changes in products. In countries like Australia, where the minimum wage is $15 an hour, Big Macs only cost 25 cents more.
“An increase in minimum wage would help the economy but it would also hurt unskilled workers. Skilled workers would begin to take the jobs to get the increased pay, hurting those without the skills to get better jobs,” said Hoss Jager, Indian Trail High School & Academy’s economics teacher.
A study backed by the Employment Policies Institute, a non-profit research organization dedicated to studying public policy issues surrounding employment growth based in Washington D.C., states raising the minimum wage has no effect on lowering poverty. However, a study by the Economic Policy Group, an economic and strategy consulting firm based in London, found that raising the minimum wage would pull more than 6 million people out of poverty.
Critics of raising the minimum wage say the move would severely hurt small business owners, making them unable to hire employees, avoid bankruptcy, and potentially even stop them from creating new businesses at all.
“Well, a minimum wage increase would cause prices to go up and some people might get laid off,” said Taylor Cutler, a General Studies junior, who works with his family at Valeo’s Pizza.
Though like the studies done on minimum wage and employment connections, the connection between minimum wage and a negative effect on small business owners are also somewhat contradictory. The Fiscal Policy Institute, New York, did a study in 2004, showing that small business growth doubled in states with higher minimum wages than the federal wage. The Economic Policy Institute notes that a minimum wage increase would add 140,000 new full-time jobs and more than $32 billion in new eco- nomic activity.
In 2012, 85 percent of small business owners already pay all of their employees more than minimum wage and 65 percent of small business owners support an increase in minimum wage.
According to the Wisconsin Economic Scorecard, 76 percent of Wisconsin voters support an increased minimum wage. According to Gallup, 71 percent of Americans support an increase to $9 an hour.
“It would definitely be easier to handle my debit card; minimum balances are tough to keep up with on minimum wage,” said Erik Nordgren, a General Studies senior who works at GameStop. “If it were to ever increase, I would save most of it, help pay for college, and keep my head afloat with extra.”
It has been seven years since Congress last voted to increase the minimum wage, and over 20 years since an increase in tipped workers’ minimum wage. As 2014 begins, 21 states now have a higher state minimum wage, and many other states and counties are attempting to increase their minimum wage.
In his 2014 State of the Union address, President Barack Obama spoke about the issue of raising the minimum wage to $10.10 an hour. Obama is currently unable to force legislation in Congress, but the president has issued an executive order to raise the minimum wage from $7.25 an hour to $10.10 an hour for federal contractors, affecting over two million employees.