OPINION: In the past six years, we have all felt the crunch from the drop in the economy. A lot of us lost our jobs. Those of us who were lucky enough to keep our jobs haven’t seen a raise. And many across the country have had to look for a second and even a third job to try to stay afloat.
Things have changed a little in the past year with the economy starting to rebound, but we are still seeing high unemployment across the nation as well as many workers who are underemployed. President Barack Obama wants to change this by raising the minimum wage.
If you remember back to his State of the Union Speech at the end of January, the President proposed raising the minimum wage to $10.10 per hour. This would be a bad idea because it would raise inflation and would ultimately hurt those the President is trying to help.
The latest evidence can be seen in the report released by the Congressional Budget Office in md February. The nonpartisan committee looked at the two proposed minimum wage increases, (the other being up to $9 per hour), and how they would affect the economy.
The first glaring evidence was that most of the wage increase wouldn’t even make it to those below the poverty line. With a raise in the federal minimum wage to $9 per hour, the report shows that only 22 percent of the raised earnings would go to families living below the poverty line. With the $10.10 proposal, that falls to 19 percent.
The report also shows that under the hike to $9 per hour, 300,000 people would be lifted out of poverty. However, another estimated 100,000 to 200,000 people would lose their jobs. If the wage increases to $10.10 per hour the number of people being raised out of poverty would rise to 900,000 while 500,000 people would lose their jobs.
“Only 2 percent of workers would be affected by a raise in the minimum wage” says Economy & Market Analyst, Louis Navellier. “And most of those are younger people who are holding temporary or part time jobs.”
Navellier also says that a rise in the minimum wage would force companies to look at more cost cutting measures especially when it comes to personnel. “You already have companies like McDonalds looking at automated machines. You can also find self-service check-out stands popping up at grocery stores around the nation.”
A rise in the minimum wage would also force companies to pass on the extra costs to consumers, ultimately leading to a rise in inflation.
Phillip Escamilla is a Human Resources and Employment Law expert. “Companies would have to adjust the way they allocate their labor costs,” he says. “This would put an inflationary price on their goods.”
He also says that lower wage workers would have more money to spend and that could also lead to a limited impact on inflation.
This is bad news for those families that would be lifted out of poverty because once inflation is adjusted, they would fall right back below that poverty line. And yes, both proposals call for adjustments in the minimum wage based on inflation, but that will not, in the long run, help those it’s intended to. It would more than likely have the opposite affect and hurt them; companies would be forced to turn to technology and cut their workforce in order to lower costs.
So what is the answer?
Letting companies raise their wages on their own. Look at Gap, for example. Chief Executive Glenn Murphy announced last week that the board has voted to raise the minimum wage for workers within the company to $9 per hour sometime this year and $10 per hour by next year. This will allow Gap to attract better workers while also limiting turnover. These are two factors you would not see if there was a raise in the federal minimum wage.
If the move works, I think you will see other companies follow suit. And yes, you could argue that would ultimately lead to a rise in inflation as well, but one that is slower and more controlled and that won’t lead to as many people losing their jobs.
Ed’s Note: Scot Murdoch is a veteran producer, editor and reporter at KFBK radio in Sacramento. His coverage areas have included politics and economics.