This article was last updated on December 6
President Obama has proposed raising the 2013 federal minimum wage to $9, from the current hourly minimum of $7.25. The current minimum-wage, last raised in July 2009, equals an annual income of about $15,000. Even though many states may have higher minimum wage rates than federal standards (the higher rate applies), millions of American workers would see a substantial boost to their paychecks from a hike in the minimum wage. An estimated 3.6 million people were paid hourly rates at or below the federal minimum in 2012, according to the Bureau of Labor Statistics. Off course business owners are not big fans of this raise since they will have to primarily bear the cost of the wage increase.
The latest Reason-Rupe poll found that over 66 percent of Americans favor President Obama’s proposal to raise the minimum wage from $7.25 per hour to $9.00 an hour. However, support plummets to 37 percent if raising the minimum wage causes employers to lay off workers. Politically, Republicans oppose raising the minimum wage to $9.00 an hour by a margin of 58 to 39, Democrats favor it 88 to 10 as do Independents 62 to 35. Again support drops if the raise cause unemployment to significantly rise.
Congress has started looking at the minimum wage increase, but fierce business opposition to the raise may mean that any increase will take a long time to get enough votes to pass the Republican controlled house.
“Every dollar in minimum wage a worker receives comes out of the pockets of consumers in the community, so there is no overall increase in spending power as supporters have lead,” said Bill Dunkelberg, Chief Economist at the National Federation of Independent Business.
“The minimum-wage issue is a double-edged sword,” Howard Schultz, chief executive of the coffee giant Starbucks, told CNBC. “On balance, I am a supporter of the minimum wage going up…[but] we’ve got to be very, very careful and be careful what we wish for because some employers — and there could be a lot of them — will be scared away from hiring new people or creating incremental hours for part-time people as a result of that wage going up.”
But other business leaders argue good wages makes good business sense. “We pay a starting hourly wage of $11.50 in all states where we do business, and we are still able to keep our overhead costs low,” said Craig Jelinek, Costco’s president and chief executive.
Against the backdrop of rising and record corporate profits it’s hard to argue against an increase in the minimum wage, but small employers who normally hire far more lower income workers at minimum wage levels have not fared nearly as well during the recovery and could get significantly squeezed if the minimum wage was to go up.
However, some states have already hiked the minimum wage in their states (which overrides the federal rate if lower). The New York state legislature has approved a budget that hikes the state’s minimum wage to $9 per hour. The new wage minimum will be phased in over three years with a hike to $8 by the end of 2013; to $8.75 by the end of 2014; and to $9 by the end of 2015. This is similar to the model being proposed at the federal level and may go someway to assuaging fears about the adverse impact of the proposed 25% jump.
The Fair Minimum Wage (FMW) Act of 2013 to raise the minimum wage has been introduced in Congress and is in the preliminary review stages. The act also contains a provision the President is pushing for which indexes the minimum wage to inflation, so it would increase when the cost of living increases. However this particular provision, which could cost business a lot on an annual basis, is highly unlikely to be approved in a final bill.
Both the Senate and the House will need to pass the FMW legislation for the minimum wage increases to go into effect. Until then no date will be set for a federal minimum wage increase. I will post updates as the bill is reviewed in Congress and encourage you to subscribe (free) via Email, Facebook or RSS to get the latest details.