Obama proposes plan to increase minimum wage

February 21st, 2013

In his State of the Union address last week, President Barack Obama brought up plans to increase the minimum wage. This increase of $1.75, reported by Business Insider, may not sound like much, but the reality is it could have widespread effects for the rest of the economy.

Business Insider proposed that this increase in wage in the past has led to an increase in consumer spending of durable goods. The economy would benefit from this increase and it could serve as a mechanism to kick the economy even further into gear.

It further explains that an increase of $1 alone for households with an annual income of below $20,000 can boost spending on items such as homes and cars. The idea is that in the year before an increase, workers reliant on the minimum wage will save funds in order to spend on larger, durable goods when their income climbs. Consumer spending on goods such as homes and cars would help aid the troubled economy, but only if done in the right market conditions.

This all sounds well and good except for the idea that with an increase in minimum wage comes a possible reduction in the amount of minimum-wage-level jobs available. People rely on these jobs, and, even though the rise to $9 increase sounds good for the individual worker, it’s not good for the market as a whole.

Fox Business reported that in previous increases to the minimum wage,

tens of thousands of jobs were taken off the market. The youth and college-age unemployment shot up and is now at an unhealthy point of 24.6 percent. Some believe that an increase would do very little to help this figure.

This should hit close to home for John Carroll students that are still looking for employment during the school year and for the summer months. As the Fox Business report shows, when employers are forced to pay a higher wage, it can limit their ability to hire more workers of the less skilled category.

There are proponents of the minimum wage that do not agree with this analysis, but it is a debate that should occur before any changes to the wage are made. I thought it was interesting that Obama brought this up in his State of the Union address, especially in these uncertain economic times surrounding the nation and its unemployment rate. Business owners, and especially small business owners, will have mixed feelings regarding the wage floor.

Hopefully it doesn’t cause more businesses to close up and keep more people out of work, but that’s for the politicians to decide. Until then, I will remain curious as to how those in office will look to cure this economy. These next few years will be critical for the longterm health of the economy.

The economy is showing signs of life, but it is still not back to where it needs to be for people to feel secure once again. People like to point to the unemployment rate when measuring the economy as well as the performance of the government. Adding to the minimum wage could put more people out of work that rely on the less skilled positions in the workplace. Economists will continue to debate over the effects of wage ceilings and floors.