Obama’s Minimum Wage: Good Politics, Contested Policy

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President Obama placed the focus of his 2013 State of the Union Address squarely on the U.S. economy, and nothing does more to illustrate the tenor of Obama’s fiscal agenda than his call to raise the minimum wage from $7.25 to $9.00 by 2015, as well as indexing the minimum wage to the cost of living.

The last time Congress voted to increase the federal minimum wage was in 2007, in a House controlled by Democrats. Republicans historically have been opposed to minimum wage, and Speaker of the House John Boehner predictably rebuffed Obama’s statements.

“Listen, when people are asking the question ‘Where are the jobs?’ why would we want to make it harder for small employers to hire people?” Boehner said.

With a Republican majority in the House, it’s unlikely – short of a political miracle for the Democrats – that a minimum wage increase bill could pass within the next two years.

And there you have it. As Obama laid out his progressive agenda for the next four years, he gave political ammunition to Democrats running in the 2014 midterm election.

The minimum wage increase surely resonates among low-skilled workers – many of which are Hispanic immigrants, young people, and women – who overwhelmingly voted for the President’s re-election in November.  And this resonance makes using the minimum wage debate a perfect messaging tool for Democrats against Republicans in the 2014 mid-term election.

Obama spelled this message out clearly in the State of the Union, saying, “Working folks shouldn’t have to wait year after year for the minimum wage to go up while CEO pay has never been higher. So here’s an idea that Governor Romney and I actually agreed on last year: let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.”

At a pivotal moment for Republicans, in which the party’s intellectual leaders are trying to soften their message on immigration reform as a way to reach out to Latino voters, Democrats will paint the party as out-of-touch with working-class Americans. It’s the same strategy that proved so effective for Obama’s campaign in the 2012 election against Mitt Romney – specifically among Latinos and working-class whites.

While it may be smart politics to advocate for the minimum wage increase, the effects of the policy are hotly debate amongst economists and politicians alike.

The main argument against minimum wage laws is that they reduce employment opportunities for low-skilled workers. David Neumark, a Professor of Economics at the University of California, Irvine, and William Wascher, the Senior Associate Director in the Division of Research and Statistics at the Federal Reserve Board, published a recent study that concludes minimum wage laws reduce employment opportunities for less-skilled workers and also reduce their earnings.

Economists on the other side of the coin (the side the White House is relying on) argue that the small magnitude of the wage increase will have little effect on employment and will reduce poverty.

Arindrajit Dube, a professor at the University of Massachusetts Amherst, told the Atlantic that a $9/hr minimum wage is in line with the historical experience in the United States.

“I think careful research on the topic has found that for this range of minimum wage increase, the almost unmistakable conclusion is that there will be little in the way of job losses, while the wages of low-end workers will get a boost,” Dube said. “At the same time, turnover rates will most certainly fall in low wage sectors such as restaurants. And most importantly, research even by critics of minimum wages actually suggest that minimum wages reduce poverty and raise family incomes at the bottom end.”

Indexing the wage seems to fall along the same partisan lines as increasing it, however it does avoid the reoccurring argument we are sure to see for years to come if it doesn’t pass.

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