US President Barack Obama’s pledge to raise the minimum wage by 24 percent has divided economists and businesses who warn it could threaten recent improvements in jobless numbers.
Obama has stated that his administration plans to increase the existing minimum hourly rate from US$7.25 to US$9, vowing to press ahead with the initiative despite the sequester budget crisis.
“There are other areas where we can still make progress even with the sequester unresolved,” Obama said, referring to $85 billion of drastic budget cuts that went into effect on March 1. “I’m gonna keep pushing to make sure that we raise the minimum wage so that it is one American families can live on.”
Unlike other developed nations such as France, where the minimum wage is indexed to inflation and adjusted automatically each year, the rate in the US often remains unchanged for years at a time.
The last increase, to the current level of US$7.25 an hour, was introduced nearly four years ago in July 2009.
“Taking action on the minimum wage is long overdue,” US Deputy Secretary of Labor Seth Harris told reporters.
The US has one of the lowest minimum wages of major industrial nations.
According to figures from the International Labor Organization, the US is only 38 percent of the median wage, compared with 46 percent in Britain and 60 percent in France.
For Democratic lawmakers, Obama’s proposals do not go far enough. Democrats in the US Congress have launched a bill hoping to raise the rate to US$10.10.
Democratic House of Representatives Minority Leader Nancy Pelosi said the increase — strongly opposed by Republicans — was necessary to protect middle class Americans.
“We have a situation where if we are to honor our commitment to the middle class, which is the backbone of our democracy, we have to reflect that in ... our public policy,” Pelosi said.
Proposals to increase the minimum wage are broadly popular, with 71 percent of people backing the move, according to a Gallup poll. Former Obama administration adviser William Spriggs, the chief economist of the American Federation of Labor and Congress of Industrial Organizations, said the hike was essential.
“The gap between the average wage of the American worker and the minimum wage is very high,” Spriggs said.
He said the current minimum wage also exposed a gender divide in the workforce, saying that those on the minimum wage were predominantly women.
“We think it would also help close the gender gap between men and women in terms of salary,” he said.
However, other economists and business groups are sharply divided over the proposals. The US Chamber of Commerce has argued the burden of any increase will be felt most by small businesses.
“The US Chamber continues to believe that increases in the minimum wage fall disproportionately on small businesses who are the least able to absorb such a dramatic increase in their labor costs,” it said. “Accordingly, the US Chamber continues to oppose increases in the minimum wage and believes that any increase must be coupled with provisions that recognize the impact this will have on small businesses.”
Michael Saltsman, research director at the conservative Employment Policies Institute, questioned whether a wage increase could be effective.
“Will it do what President Obama wants to do, which is help to reduce poverty?” Saltsman said.
“On that question, the minimum wage has been a disappointment too,” he said, adding that poor people “need a job, not a wage increase.”