Small Business

Support for raising minimum wage found in surprising places

President Barack Obama’s move to increase the minimum wage for federal contractors highlights what is expected to be a key point in tonight’sState of the Union address. Yet despite the White House action, raising the pay floor for workers remains a contentious issue that divides opinion along unexpected lines.

One reason for the ongoing debate is that experts differ over the likely economic benefits of raising the federal minimum wage, which is $7.25 an hour and which was last raised in 2009. Advocates of an increase say that raising the minimum wage will increase the purchasing power for millions of Americans, fueling spending. Lower-paid workers tend to spend any increase in their pay, supporting economic growth.

But opponents of a minimum wage hike say it will force employers, especially small businesses, to lay people off and impede hiring. But recent studies suggest both views are wide of the mark.

Arindrajit Dube, anassociate professor of economics at the University of Massachusetts, Amherst, who has done extensive research on the minimum wage,has found little evidence of related job loss.

“A particularly reliable methodology compares adjacentcounties that are right across the state border but that experience differentminimum wage shocks,” hewrote last year in the New York Times. “While higher minimum wages raise earnings of low-wage workers, theydo not have a detectable impact on employment. Our estimates… suggest that ahypothetical 10 percent increase in the minimum wage affects employment in therestaurant or retail industries, by much less than 1 percent; the change is infact statistically indistinguishable from zero.”

At the same time, professors Joseph Sabia of AmericanUniversity and Richard Burkhauser of Cornell University said in a 2010 study that there is little evidence that wage hikes help the poorest Americans.

“Only 11.3 percent of workers who will gain from an increasein the federal minimum wage to $9.50 per hour live in poor households,” theyfound. “Of those who will gain, 63.2 percent are second or third earnersliving in households with incomes three times the poverty line, well above 50,233,the income of the median household in 2007.”

Relatedly, there is ongoing debate over whether a mixture of policy prescriptions, including not only lifting wages but also, for instance, expanding the Earned Income Tax Credit, represents a better way to help vulnerable Americans.

One thing most economists do agree on is that today’sminimum wage is worth less than it used to be. Adjusted for inflation, $7.25 an hour is 23 percent lower today than it was in 1968. Severalstudies show that if the minimum wage had kept up with inflation and with thegrowth of average labor productivity over the past 46 years, it would be around$25 an hour

This last point may be one reason why the public overwhelmingly favors a wage increase.

A December Washington Post poll found two-thirds ofAmericans support raising the minimum wage, while a recent Gallup poll showed76 percent in favor. While it may not be a surprise that 85 percent ofDemocrats support such a move, half of all Republican’s and 65 percent ofindependents also support such a move, according to the Post poll.

Despite such bipartisan support, many GOP lawmakers at both state andfederal levels remain opposed to lifting the minimum wage. Last year, House Republicans unanimously voted against a bill to raise the wage to$10.10 an hour. A similar bill was killed earlier this month in Wisconsin,where Republicans control both the legislature and the governor’s office. Bills to raise the minimum wage are now pending in 30 states.

Among the interests opposing a rise in the minimum wage are a number of business groups that historically have lobbied against pay hikes, including the U.S. Chamber ofCommerce and National Federation of Independent Businesses. But the issue divides the business world as well, with groups like theU.S. Women’s Chamber of Commerce, most of whose 500,000 members are smallbusinesses, supporting an increase.

Even some staunch conservatives have come out in favor of boosting the minimum wage. In a recent issue of The American Conservative magazine, PatrickBuchanan – a pundit and some-time GOP candidate for President — said a raisewould be a good thing.

“[T]he fact on the ground is that people who for whateverreason are consigned to work minimum wage jobs for part or most of their lives arenot able to provide for their cost of living, especially if they are raisingkids under those circumstances,” he recentlywrote. “If the minimum wage were increased, these people would be able toprovide for their living without assistance from the government, and as a resulthave more dignity in their lives.”