Andrew Jannetta ’14: In his recent proposal to increase the minimum wage, President Obama neglected the burden that such a raise would impose on businesses of all size as the raise in pay would come out of business owners’ own pockets. The president insists on charging private business and industry with fixing insoluble social ills, when an adjustment to the earned income tax credit is a much more reasonable approach.
President Obama suggested, during his State of the Union, a raise of minimum wage, initially to $9 an hour, then up to $10.10 an hour by 2015. After that, the minimum wage would be adjusted to the rate of inflation to meet the President’s requirements for a so-called “living wage.” However, this may lead to even more dramatic increases in minimum wages in the years to come. Such a raise would end the poverty the President is trying to cure; however, a raise beyond $9 is simply impractical.
Making a demand on businesses after the US has just emerged from a recession seems nothing short of overbearing. With payroll taxes scheduled to increase as a result of the fiscal cliff deal and the necessary benefit payments scheduled to increase as a result of Obamacare, an increase in minimum wage could take many employers into the red.
Once no longer making profits, businesses will be forced to raise prices, directly hurting consumers. These include those who are now making $9 an hour, in essence raising the wage floor. President Obama would be raising the price necessary to buy the same goods he wanted minimum wage earners to buy before they received a wage increase. Raising the minimum wage presents an intractable issue, creating negatives that will always outweigh positives.
The other option for heavily burdened businesses is to cut their overhead costs, and the simplest way to do so is to cut employment. With this in mind, Ron Ross of The American Spectator noted, “You could have a job that pays $4 an hour where you learn something, develop good work habits, and increase your marketable skills, or you could have no job, earn zero dollars, and have no chance to make progress.”
What is the federal government to say what a job is worth to private industry? Should someone cleaning tables earn the same as someone at a higher skilled, entrance level position? Not only would this raise the wage floor, but jobs which require unique talent will be forced to raise their own wages, since $9 an hour or $10.10 an hour does not attract the most highly qualified candidate for more highly skilled jobs.
This policy would be especially detrimental to the teenage demographic. Dr. Joseph J. Sabia of the University of Georgia noted in 2006 that a 10 percent increase in minimum wage would result in “a 4.6-9.0 percent decline in teenage employment.” Furthermore, not all minimum wage positions are the standard “flipping burger” jobs but also include assistant positions, like those in research labs and business offices.
Such a raise in minimum wage may force these employers of higher-skilled workers to reduce job opportunities, beginning with the positions least necessary: teenagers trying to learn the basics of employment and fields of work. These statistics presented by Dr. Sabia before the recession also note that a raise of 10 percent is “associated with a 0.9 to 1.1 percent decline in retail employment and a 0.8 to 1.2 percent reduction in small business employment.” The kicker, the Obama proposal of a raise of $1.75 ($7.25 to $9) is a 24 percent increase. Ross wrote, “At a time when the nation is desperate for ‘job creation,’ the minimum wage is by far the worst job destroyer.”
There is a better way to push President Obama’s social agenda, which involves the earned income tax credit. A raise to this credit would provide a greater tax refund for low to moderate earning individuals and families. In fact, raising this refund, which increases if you have children, would defer the economic weight back to the government, a fairer proposition for the President to ask.
Ultimately, raising the minimum wage only hurts low to middle class individuals and their families by raising the wage floor, increasing inflation, and decreasing employment after the US has just emerged from a major recession. President Obama should instead focus on raising the earned income tax credit to remove the burden from individuals, preventing the negative consequences that would result from a proposed minimum wage hike.

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