President Obama throws his support behind increasing the minimum wage

Last night’s State of the Union address laid the foundation for important policy initiatives, from investing in infrastructure and early care and education to prioritizing the creation of more manufacturing jobs.  But according to a post-SOTU briefing hosted by the White House, the “most-tweeted” element of the President’s address was his proposal to increase the minimum wage to $9.00.

“We gather here knowing that there are millions of Americans whose hard work and dedication have not yet been rewarded… for more than a decade, wages and incomes have barely budged… We know our economy is stronger when we reward an honest day’s work with honest wages.  But today, a full-time worker making the minimum wage earns $14,500 a year… 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.”

This proposal lays the foundation for an important conversation about increasing the minimum wage, a conversation that has already been joined by many, including our former EPI colleague, Jared Bernstein, our colleagues at the National Employment Law Project, and even Bloomberg News, which posted an article online that recognizes the positive impact such a change would have on the economy.

The erosion of low wages is not news, both in the sense that it’s not a new phenomenon, and it certainly hasn’t been the focus of much media attention.Nor is it news to families that have been struggling for decades to get ahead, only to see their real wages eroded over time.  But having the President throw his support behind increasing the minimum wage certainly is an important development.

Raising the minimum wage to $9.00 by 2015 would affect approximately 18 million* workers.  The White House fact sheet on the minimum wage proposal notes that 15 million workers would benefit.  Our analysis shows approximately 13.4 million workers would be directly affected, and another 4.7 million whose wages are currently slightly above $9.00, would benefit indirectly, as their wages were incrementally increased.  We have a pretty good idea who these workers would be, having analyzed the demographic impact of increasing the minimum wage to $9.80 in 2012, as proposed by the Fair Minimum Wage Act.  That analysis showed that more than half of those who would be affected are women, more than four in five are 20 years of age or over, more than a quarter are parents, and over a third are married.  Moreover, the average affected worker earns about half of his or her family’s total income.  While the demographic breakdown for a $9.00 minimum wage would differ slightly, these breakdowns would still be in the right ballpark.

Much of the “buzz” around the President’s minimum wage proposal was around the idea of “tie[ing] the minimum wage to the cost of living, so that it finally becomes a wage you can live on.”  While indexing the minimum wage is a great idea – it’s been adopted in ten states, with significant positive results, as my colleague David Cooper notes – it’s important that indexing build on a solid starting point, since you basically get locked into wherever you start.  With that in mind, $9.00 is certainly a good place to start the conversation, if not, perhaps, the indexing of the minimum wage. The other important consideration has to do with how the indexing is achieved.  My EPI colleague Heidi Shierholz has written persuasively that in order to really “fix it and forget it,” we should be indexing using the average growth in workers’ wages, so minimum wage workers aren’t gradually left behind.

While there is room to fine-tune the President’s proposal, the fact that he included this in his State of the Union address sends a strong signal that he recognizes that as America returns to greater prosperity, those working hard and playing by the rules should see a greater share of the fruits of their labor.

* This blog post originally included a slightly different estimate of the number of affected workers.  This revised estimate reflects improved methodology reflecting the phase-in for the proposed $1.75 increase.

  • moreallity

    This guy can not understand how economics work. If I own a business. I have let say 5 employees making widgets for the gobernment. I sell the widgets for $10.00 each it take $7.00 in time and material to make the widget. My employees use to make $7.00 per hour. 7 x 40 =280.00 per week times 5 employees is $1400 in payroll each week not counting me (a warren buffet look alike). This means I have to sell 140 of these each week to the government to break even and make payroll. This means my building is free and I pay no payroll or business taxes….Ya right, Dorthy put your red slippers on we are headed to Oz. Now Mr Obama says I have to pay $9.00 per hour to each of my employees. ( 9 x 40 = 360.00 per week x 5 =1800.00 Now the government only needed 140 of the widgets per month. Its ok I have an answer I will charge them more, and risk the work going to China. Then I can layoff all of my 7.00 workers and close my shop and let the boys in China make my parts. Then I can go and hire one person so it looks like I am helping the economy. And when the minimum goes to 9.00 everyone over that just got a 2.00 pay cut and all the raises you worked so hard for just got nulled out. The poverty class gets bigger and the government needs to raise taxes again to pay the unimployment increase. Sear Genius on the governments part. Idiots on both sides of the isle if they agree to this BS. Fire them all and start over!!!

    • bluefog

      This is the same argument used by those who opposed even creating a minimum wage. If the minimum wage was increased your workers could quit the second and third job they need in order to afford the basics like food and shelter. You would have more productive workers because they are no longer exhausted. Their former second and third jobs will be filled by new people who were unemployed. Soon the consumer population increases and so does your income. Then you might need to hire more employees to make your increase in business. More people working means less homeless people and fewer welfare recipients. As for the tax increase I do not know why the cap on FICA isn’t totally removed. That would mean social security could be raised above the poverty level and thus more flexible income.