Published January 28, 2014
President Obama took his first action to build momentum for a unilateral national minimum wage hike by announcing an executive order raising the minimum wage for federal contract workers. The move hikes the federal minimum wage for these workers to $10.10 an hour from $7.25.
The wage increase will impact more than 2 million employees, according the White House and the president is expected to address his desire to see Congress pass legislation to increase the national wage to $10.10 in his State of the Union address Tuesday night. The president does not have the authority to raise private sector wages.
A National Employment Law Project study reports that 77% of workers earn under $10 an hour, and four in 10 rely on public assistance programs to help make ends meet. On Monday, the Associated Press reported one in every seven Americans is on food stamps, and that for the first-time ever, working-age Americans make up the majority of recipients.
However, economists are torn on whether a wage hike will help minimum-wage workers’ bottom lines.
Pam Villarreal, senior fellow at the National Center for Policy Analysis, says a small percentage of workers will benefit from the president’s executive order raising government contract workers’ pay as few actually earn minimum wage.
She argues that raising the minimum wage can distort the already-weak labor market. “[The cost of the hike] is eventually passed onto all employees, contract or not. It will do very little to actually help poor people—that is what the earned income tax credit is for.”
She points to a recent study from San Diego University that claims only 11.3% of minimum wage workers in the country are living in households with poverty-level incomes or less. On the other hand, 63.2% of minimum wage workers live in households with two-to-three times the poverty level.
Labor expert Gary Burtless of the Brookings Institution says the extra income would help minimum wage workers, they would likely spend it before they could feel a long-term difference on their overall living standards. “People at the bottom end of the wage ladder tend to spend their money faster than someone who is much further up in distribution, who can save it and put it in a pension or savings plan,” he says. “They will spend additional money faster than it will be saved.”
Instead of helping to drop the participation rates in social safety and welfare programs, Burtless argues this hike would have a greater impact on short-term consumption.
And even if a minimum wage worker has a few extra dollars in his or her pocket, likely under $100 a week for a 40-hour work week, post-tax, Villarreal says any hours may be scaled back as a result.