STATE OF THE UNION FEBRUARY 12, 2013
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President Obama said two words in the 2013 State of the Union speech that can’t be found in any of his previous four State of the Union speeches: “minimum wage.”
Here is what Obama said:
We know our economy is stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, nineteen states have chosen to bump theirs even higher.
Tonight, let’s declare that in the wealthiest nation on earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour.
I don’t know why Obama said $9 an hour (it’s $7.25 now). Ten dollars an hour would be better. In the 2008 campaign, Obama promised to raise the minimum wage to $9.50 an hour. Factoring in inflation, that would be $10.13 today. So Obama’s shaving more than a dollar off what he promised in 2008. But since Obama hadn’t previously pushed to increase the minimum wage since he entered the White House, perhaps we should be grateful he’s now willing to call for any increase at all.
During the 2012 campaign, I was puzzled why Obama wasn’t willing to call for a minimum-wage increase. It seemed a great way to stimulate the economy without spending a dime of federal revenue. I assumed Obama felt intimidated by the canard (repeated in the post-speech PBS commentary by David Brooks) that a minimum-wage increase would increase unemployment. But a growing body of economic research (including some by Alan Krueger, chairman of the Council of Economic Advisers), has shown this is not the case. That’s probably because whatever increase a minimum-wage increase brings about in the cost of hiring is offset by an increase in economic efficiency attributable to a drop in turnover and an increase in productivity. When you pay workers a decent wage—imagine this!—they give their employers better value.
Another reason I couldn’t figure out why Obama wasn’t willing to talk about the minimum wage in 2012 was that it would have been a great way to drive a wedge between his GOP opponent, Mitt Romney, and the more conservative Republicans who supported Romney but never really trusted him. “Here’s an idea that Governor Romney and I actually agreed on last year,” Obama said in the State of the Union. “Let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.” Exactly! During the campaign, Romney fudged his support for indexing the minimum wage to inflation by mumbling that it should also be tied to the unemployment rate, to wages in other nations, to his standing in the polls, etc. But he didn’t do a complete flip-flop, as he did on many other issues. Mainly Romney defended his past support for the idea of indexing the minimum wage to inflation.
Better late than never, I suppose. But if Obama really wants to show common cause with Romney, he should index his 2008 campaign promise to 2013 and push Congress to raise the minimum wage all the way to $10 an hour. If that strikes him as too radical, he should consider that if we indexed the minimum wage back to its historic peak in 1968, then he’d have to raise it to $10.56.
Don’t start bargaining, Mr. President, before you hear a peep out of the Republican opposition. That’s a bad habit that you need to lose.
18 comments
Minimum wage here in Australia is $15/hour. (For whatever such comparisons are worth, the Aus dollar is trading slightly stronger than the greenback.) Throw in free, semi-universal healthcare (some elective services are free but with a long wait, a wait that the privately-insured can bypass) and you're left with a situation where burger-flippers can support themselves independently. Absolutely nothing wrong with that. Sure, you pay >40% income tax on top of a national 10% goods-and-services tax (regressive AND deflationary...boo, hiss, thanks-fer-nuthin, John Howard) and you pay more for a Big Mac even excluding the GST, but it makes for a widespread egalitarian spirit that I can only dream about in my native USA.
- AaronW
February 13, 2013 at 12:03am
The biggest mistake of his first term was at least not indexing it to inflation when he had 60 votes in the Senate and had the house.
- blackton
February 13, 2013 at 1:05am
There are jobs but almost all are part-time with no benefits. A higher minimum wage would be good but full-time jobs would be better. Of course, employers limit work to part-time in order to avoid benefits. The nexus between jobs and health care is a historical anomoly and ACA's worst feature, the consequence of which is that, eventually, only the privileged few will receive generous health care benefits from their employers and working Americans will be left to fend for themselves in the individual market. Only the naive believe the "exchanges" will somehow (a miracle, perhaps) put those in the individual policy wilderness on an equal footing with the privileged few with generous group coverage; indeed, when presented with the opportunity to adopt minimum standards for health insurance policies (essential health benefits), the Obama administration punted. The same criticism can be applied to the nexus between jobs and funding of entitlements, which discourages employment and encourages schemes to avoid the taxes. Yes, let's increase the minimum wage to a living wage, but let's not forget the damage to working Americans resulting from the perverse structure for obtaining health care and for funding entitlements.
- rayward
February 13, 2013 at 7:11am
Tim: did you ever have to meet a payroll? Did you ever have to meet a payroll in a Northeastern state? Did you ever have to meet a payroll in a large city in a Northeastern state? Did you ever have to pay the state and local taxes small business persons (and by that I mean less than fifty employees). Did you ever run a business with between $500,00 an $1,000,000 volume in business (coverage begins at $500,000) and same for retirement and your two kids' college? In other words, do you have any idea what you are talking about? I see no sign that you do. At this time and this place, this is a prescription for more vacant store fronts without adjusting who is covered.
- Shane Fergessen
February 13, 2013 at 7:14am
I have decided to visit only those doctors who have experienced death.
- Nusholtz
February 13, 2013 at 7:46am
Did you ever have to live on $7 and feed yourself? Get medical care? Wonder if you'll get kicked out of your living space (even at $15/hr you can't afford a house)? College? What's that? You can barely survive much less go to college. Retirement? At $7/hr you can retire when you're dead.
- tmmats
February 13, 2013 at 9:32am
And read Aaron's reply. Australia is doing better than the US. Same for Canada. Higher minimum wages and taxes there, as in Scandinavian countries and Germany, and they're all doing vastly better than the "we're #1!!" US.
- tmmats
February 13, 2013 at 9:39am
"Tim: did you ever have to meet a payroll? Did you ever have to meet a payroll in a Northeastern state? Did you ever..." The article answers this as does the first comment by AARONW. The fact that some or many employers understand their business does not lend to the conjecture that they understand micro- or macro-economics in equal share. Higher productivity, lower turnover, higher morale all would lead to a reduction in the need for our payroll-covering employer to have quite as many employees or to bother with the constant overhead of replacing and retraining them ... all while the overall economy would do better as demand could match capacity, as demand ONLY can by spreading units of transaction as widely as feasible, which would yield a dividend for our employer who would be running more than the $500-1000K imagined here on account of it. We would be a much, much healthier society with aggregate value distributed more widely, more evenly and more efficiently, and have at least one meaningful puncture in the pipeline that inefficiently and unjustly wastes aggregate national resources and value on the top % (you pick, 1, 2, 3..?) with the same economic affect as the GOP ceaselessly complains that aggregate national resources are wasted on excess government spending.
- dcwood10
February 13, 2013 at 10:11am
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SHANE FERGESSEN, one of the things that businesses could do to offset the colossal, staggering wage of $9/hr. is to insist that America adopt a universal single-payer health care program, where businesses are not responsible for an employee's health care. But ignorant business people would call that socialism, even though private business is making colossal profits from the single-payer Medicare system we have--and at taxpayer expense. America is headed directly for socialized medicine in the future. There is no other option to keep people alive. As for $9/hr., in today's America, where business people are relentlessly raising their prices during a recession, that would barely keep my cat alive.
- magboy47.
February 13, 2013 at 11:13am
I think you are on to something, but why stop at $10 an hour, let's make it a $100 an hour, or $200 an hour. Why not guarantee every working American an income of at least $200,000, or $400,000. Imagine all the tax income you would collect from the people that could pay for more welfare services for the unskilled people that would lose their jobs. After all, once you've decided to put people out of work to achieve your political ends, why not go all the way?
- arnett
February 13, 2013 at 1:06pm
because what you suggest is gibberish, but thanks for playing, it was good for a laugh. Ever hear of Reductio ad absurdum?
- blackton
February 13, 2013 at 1:36pm
@blackton: Other than just saying it is gibberish, why? How many people will raising the minimum way to $10 an hour put out of work? If you say zero, you are speaking gibberish? Sure, raising the minimum wage will help those that have enough skills to keep their job at the higher wage, but how will it help those unskilled people that will lose their job? Is putting people out of work the intent of this recommendation? If you say no, then you are speaking gibberish. Do you care about the people the that will lose their job.
- arnett
February 13, 2013 at 2:25pm
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Noah writes: "I don’t know why Obama said $9 an hour (it’s $7.25 now). Ten dollars an hour would be better."/// Actually, why not make it $50 an hour? Or $100/hour? The fact is, raising the minimum wage DOES cause distortions that are very real. A rising minimum wage raises the price of everything. And it raises everyone's wages too, depending on how close they are to the minimum wage. But in the end, there's no free lunch. If you double everyone's salary, then houses cost twice as much and ipads cost twice as much. The crap about minimum wage was populist garbage made to cause a tingle in the legs of that feel, rather than those that think. ///Note there was a study not too long ago on the worldwide price of an ipad, all taken on a single day, and using google to convert the prices. In the US it was $499. In Australia it was $589. So, to AaronW, you can see the cost of Australia's social system. It results in an ipod costing $90 more (18%) that it does in the US. In Sweden, an ipad costs $138 more than in the US. The UK is $120 more.///So, we could raise minimum wage in the US to $15, same as Australia (and our minimum wage earners already have free health care). But the impact roughly is that goods will cost 20% more. Is that reasonable?
- seattleeng
February 13, 2013 at 1:34pm
Rayward writs: "Yes, let's increase the minimum wage to a living wage, but let's not forget the damage to working Americans resulting from the perverse structure for obtaining health care and for funding entitlements. ”///And let's not forget how previous perverse market distortions by the government causes us to arrive at employers being involved in healthcare in the first place. Way back when, the marginal tax rate was 50+% for high earners. So, instead of giving salary, employers opted instead to give perqs such as company cars, country club memberships, expense accounts and yes, health care. All of these forms of compensation avoided the crushing tax rate. This is yet another example of how gov policy that intends to to good causes odd distortions with ramifications far beyond what the pinheads in office could ever anticipate.///A person is paid minimum wage because the job does not require much in the way of training and because there is a long line of folks that could do the job if needed. Rather than distort the market, why not create an employment environment such as the late 90's and mid-2000's, when unemployment was so low that wages naturally rose? WHy not create a market where employers were so hard-up to find a worker that they did incredible things to attract and hire and retain employees?///Of course, today's dems cannot fathom anything like the late 90's anymore. It's all about how we can be miserable together. Much like Europe.
- seattleeng
February 13, 2013 at 1:50pm
Yes, I think it's reasonable. I'd regard a proper national health care system without the commercial distortions and waste as a good return for having to pay a few bucks more for an ipad -- and remember, it wouldn't be that much more in the U.S., as the economies of scale benefit us more than the Aussies or the Swedes.
- ironyroad
February 13, 2013 at 8:59pm
It's not just an ipad. It's EVERYTHING. Your next car will be 20% higher. Your next house will be 20% higher.// But what is the difference? An aussie makes $15/hour, pays a 20% premium on the cost of everything AND faces an effective tax rate of 15%. Thus, the $15/hour is actually about $10/hour in real purchasing power. The US worker make $7.25/hour, pays no tax and has subsidies by truckload, including free medial care, and enjoys all the modern technology at a fraction of the price his overseas counterparts earn. ///As noted before, there's no free lunch.///Raising minimum wage WILL hurt employment among that need it the most. But of course, if your goal is to get everyone on food stamps, disability and unemployment, then indeed it will succeed. These are all running some 50% higher than when Bush was in office. Mission accomplished.
- seattleeng
February 14, 2013 at 12:33am
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I have no idea what the actual minimum wage is in the US, but it's certainly higher than the law states. One need only breathe to collect Medicare--income sans work. All the subsidies for the poor so distort the labor market it's difficult to see what the marginal cost of a worker is. I suppose someone in the government has an idea, as do most businesses.
- karlwk
February 13, 2013 at 11:42pm
I know it's not just the ipad, seattle, I'm aware you were using it as an example! For jaysus' sake. Still, I think the trade-off is a good one and I don't believe it would be a 20% extra hike in the U.S. The upside: there's a great peace of mind in the awareness that one's family is protected in the case of a major medical crisis, and that enables risk-taking and enterprise (e.g. people aren't so scared to quit their jobs and look for something new as they are here).
- ironyroad
February 14, 2013 at 2:01am
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