The Proposal to Increase Federal Minimum Wage

KRISTEN SUSIK — President Obama is actively involved in promoting the proposed legislation to increase the federal minimum wage, the Fair Minimum Wage Act of 2013.  At a State of the Union address, President Obama indicated that a full-time worker earning the current minimum-wage did not earn enough money to fall above the federal poverty line. Democrats argue that the three-phase minimum wage increase, ultimately raising wages to $10.10 per hour, will help promote economic growth.  The Act will also provide for automatic adjustments over time for inflation to ensure smaller gaps in “income inequality.”   One study suggests that if the minimum wage amount had been adjusted for inflation the current minimum-wage earners would earn approximately $10.50 per hour today.

Proponents of the Fair Minimum Wage Act of 2013 contend that raising the minimum-wage will increase the spending power of this class of workers and thus increase consumer demand.  Democrats allege that the lack of current consumer demand is one of the “most significant factors holding back hiring.”  Conservatives rebut this argument claiming that the increase in labor costs will cause companies to cut costs by eliminating jobs.  The potential reduction in employment may be achieved by investing in expensive technology that can replace human labor depending on the cost comparison of human labor versus technology.  The Congressional Budget Office report found that the federal minimum-wage increase would remove nearly one million people from poverty, however it would also eliminate nearly 500,000 jobs.

Supporters of the Act also maintain that though corporate profits will decrease, the economy will grow because these workers will spend the money faster than the corporations would.  As a result of the increase in demand for goods and services employers will need more employees.  Conservatives disagree with this point and highlight that the increase in wages could potentially drive up prices throughout the market.

While both sides raise good arguments to support their positions, it is inconclusive what the actual result of raising the federal minimum wage will be.  Corporations may choose to deal with increase in labor costs by decreasing the amount of labor needed, cutting costs in other areas, or by simply absorbing the loss in profit without making additional changes.  Fortunately, the three-phase implementation allows businesses to make decisions over time and make the necessary adjustments after each phase.

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