The State of the Union address usually serves to rally the nation for a new year, but this year, President Obama introduced a new policy to raise the minimum wage for federal workers by executive order.
In the plan laid out after the address, the Obama administration would only provide federal contracts to companies that pay their employees a minimum of $10.10 per hour. The change would take effect in 2016.
There is substantial disagreement among economists over the impact changes in the minimum wage have on the nation’s employment. Stephen Lich-Tyler, lecturer on labor economics at the University of North Carolina at Chapel Hill, said part of the reason for this disagreement is a lack of clean experiments.
“Minimum wage changes tend to happen when the labor market is improving anyhow,” Lich-Tyler said. “Any negative effects will be masked by an economy that’s improving, and when we see positive effects, it’s hard to know how much of that is the minimum wage.”
Whether economists believe an increase in the minimum wage would help or impede employment, Lich-Tyler said there is one common thread throughout their findings.
“Everyone really has the same findings: that it would have a small effect on employment,” he said.
Minimum wage and the public
The first federal minimum wage law that was not overturned by the Supreme Court took effect in 1938, at $0.25 per hour.
The current national minimum wage is $7.25 per hour, but adjusting for inflation, the minimum wage has been higher in the past.
For example, the minimum wage when The Pendulum started in 1974 was $2.00 per hour. Adjusted for inflation, that is $9.45 today.
Fast food workers in the United States have protested the $7.25 minimum wage for the past year. Twenty-one states, including the District of Columbia, have a statewide minimum wage that exceeds the national rate.
Most recently, New Jersey raised its minimum wage to $8.25 per hour in a ballot initiative. North Carolina is one of 20 states where the state’s minimum wage is the same as the national.
Kenneth Fernandez, assistant professor of economics at Elon University and director of the Elon Poll, said an increase in minimum wage across the board to $9 an hour was popular among those polled – 90 percent among Democrats and 51 percent among Republicans.
Fernandez said the number 10 could change some people’s perspectives.
“When you get into double digit numbers, it can affect people’s perspectives,” Fernandez said. “Business and marketing people know you can sell more for $9.99 than $10.”
Past increases in the minimum wage have ranged from roughly 9 to 14 percent, with the last increase in July 2009 raising the minimum wage by 10.6 percent.
The increase proposed by Obama for contracted federal workers would be 39.3 percent.
Fernandez added that public opinion on increasing the minimum wage may change when people consider federal employees.
“They’ll think of people who have job security. They’ll think of people with higher pay,” Fernandez said. “But during the budget crisis, we saw workers working hourly, getting checks cut, so people’s perception might be changed by that.”
Concerns over increases
Among some economists and politicians, there is a concern that an increase in the minimum wage will lead to layoffs in lieu of paying more to all current employees, but Fernandez said many businesses are now set up in a way that would make mass layoffs difficult.
“Industries have learned to have very little inventory and have been very efficient in staffing. It’s very difficult for them to lay off large amounts of people off,” he said. “But some economists say they’ll find a way.” Fernandez gave the example of McDonald’s as a model that uses minimum wage.
“McDonald’s is working with a skeleton crew,” he said. “They sell food very cheap and only hire people when they need them.”
Lich-Tyler said that any inconsistent increase in the minimum wage would have disadvantageous effects on those contractors who do have to increase pay.
“Probably what will happen is you would see some imbalance between what these contractors do when it comes to federal work versus what they would be doing if it were the private sector,” he said.
Adding to the inconsistency of increases, the government’s requirement that contractors use the new minimum wage of $10.10 would only apply to new contracts. Any renewed contracts would need to be negotiated over if the minimum wage requirement is to be included.
Lich-Tyler said that he anticipates federal contractors trying to shift some of their low-skilled, minimum-wage workers.