Barack Obama’s state of the union proposal to require federal contractors pay a $10.10 minimum wage seemed little more than a gesture, almost laughable really. “How many people . . . will this executive action actually help?” asked House Speaker John Boehner. “I suspect the answer is somewhere close to zero.”
Boehner’s probably right. The order only affects future contracts, and most federal contractors likely pay their employees more than $10.10 anyway. But no matter, because what Obama has done is seized on an issue of consequence and finally, even if ineffectually, done something about it. He’ll get points for that, points he should be able to turn into ballot-box wins for Democrats in the upcoming midterm elections.
The larger worry that the president seeks to address is the deteriorating circumstances of the middle class. Those families — neither rich nor poor — have been taking a beating. The share of Americans who think of themselves as middle class is now 44 percent, down from 53 percent in 2008, according to a new survey from the Pew Research Center. The causes of these changes are complex and over time — especially with the economic recovery underway — some of it might right itself. Any proposed solutions are complex as well. But one fix, at least, appears simple and immediate: Increase the minimum wage. “Give America a raise!” Obama urged in his address, and really, what not-so-well-paid voter wouldn’t want that? Few, I think, which is exactly what makes it so politically powerful.
First put in place in 1938, the federal minimum wage started at just 25 cents (of course, back then two bits could get you a shave and a haircut). It’s not pegged to inflation, so Congress has to legislate any changes. The last rise in 2009 was to $7.25, which is, historically speaking, comparatively low. The high point for the minimum wage was 1968, when the real rate (that is, adjusted for inflation) was $10.77. Today’s minimum is thus a third less, which gives Obama much room to argue that any proposed increase is long overdue.
The push-back to hiking the minimum wage is that it’s a job killer. In theory, increases to wages cause businesses to hire less (in the same way that an increase in the price of a product would cause consumers to buy less of it). But sometimes theory gets hijacked by reality. Economists endlessly debate the point, but much data suggest past rises haven’t significantly hurt jobs. “Why does the minimum wage have no discernable effect on employment?” wonders a 2013 study from the left-learning Center for Economic and Policy Research. The report advances a number of explanations. Better-paid employees stay with their jobs, companies find other efficiencies to compensate, businesses simply raise prices, or incomes of the highest paid get slightly reduced.
Granted, at some point a large boost to the minimum wage — say doubling or tripling it — would wreak economic havoc. But at the modest levels Obama is proposing? Probably not.
But the impact on wage earners would be huge. A full-time worker making the minimum today grosses around $14,500. A boost to $10.10 would push annual earnings to $20,200. Is nearly $500 a month meaningful? You bet it is. Moreover, increases in the minimum wage tend to have a ratchet effect, in that workers now paid slightly more than the minimum will also see their compensation go up.
The larger worry that the president seeks to address is the deteriorating circumstances of the middle class.
You can see where this goes politically. Some argue that since lower-paid workers tend to vote for Democrats anyway, there’s no real political gain to be had from the increase. But during his reelection, Obama’s team figured out that there were certain wedge issues — such as same-sex marriage or immigration reform — that would energize segments of the Democratic base, boosting turnout and overwhelming less-enthusiastic Republican voters. The minimum wage is a wedge issue too. If Republicans resist an increase, they’ll look to be denying money in families’ pockets all out of some nebulous concern for well-heeled corporations. Us versus them doesn’t make for a pretty picture — unless, of course, you’re a Democratic strategist seeing that a path to victory runs along a minimum wage road.