A new debate has begun when President Obama proposed a minimum wage increase from $7.25 to $9 per hour. Obama raised the issue during his State of the Union address which transpired last Thursday. However, it was greeted with a heated argument among policy experts, economists and politicians who believe that a higher minimum wage could either create more stability for the poor or it could drive the unemployment rate up – and injure the economy even more.
Obama defends his proposal by saying that the $9.00 per hour minimum wage should help reduce the number of people in America who had to work fulltime yet still live in poverty. He believes that this increase will help raise their income and therefore, it could mean the difference between food stamps and groceries. The business sector is also expected to benefit from the wage increase because Obama believes the increase could transform everyone into shoppers with more money to spend. Overall, he believes that his proposal will benefit the economy.
Wage Increase Could Mean Fewer Jobs
House Speaker John Boehner is among the first politician who has publicly announced his opposition to Obama’s minimum wage increase proposal. Boehner says that the $9 per hour minimum wage increase will cause unemployment because employers simply won’t be able to afford the added cost. The higher salary requirement also makes it more difficult for small time businesses to hire people. Without people to work on their production, these businesses would need to close.
Another economist believes that the added costs of employment would later on be transferred to the consumers. Large businesses operating in very competitive markets react to such increases by either passing on the costs to their consumers or finding a way to operate and reach production goal with fewer employees.
Alternative to Wage Increase
Since Obama’s main goal for the wage increase is to better the American standard of living, economists suggest another alternative. This alternative comes in the form of the Earned Income Tax Credit, which aims to help low income Americans get a tax credit that would bump their pay up a few dollars per hour.
Another alternative would be better information dissemination on money management. This is following a study which shows that a lot of American employees spend so much on bad credit loans that have rolled over and with interest rates piled up. All these can be attributed to the fact that finances were not properly handled. The current wage would have been enough if there was a proper system of financial management in place.