Pressure Builds to Raise Minimum Wage. What Does it Mean?
Back in 2013, President Barack Obama used his State of the Union address to call for raising the federal $7.25 minimum wage, which has been in place since 2010, to $9. In his address on January 28, he appealed to Congress and employers to raise the minimum wage to $10.10.
Published on: Mar 4, 2016
Transcripts - Pressure Builds to Raise Minimum Wage. What Does it Mean?
Toll Free: 877.880.4477
Pressure Builds to Raise Minimum
Wage. What Does it Mean?
Back in 2013, President Barack Obama used his State of the Union address to
call for raising the federal $7.25 minimum wage, which has been in place
since 2010, to $9. In his address on January 28, he appealed to Congress and
employers to raise the minimum wage to $10.10.
But in order to make that happen for all workers, Obama noted, he needs
Congress to act. Instead, he will decree, by a presidential order, that the
minimum wage paid to workers employed on new federal contracts rise to
$10.10 per hour level.
Should you care? Should you take any action in response?
If you are a federal contractor or work on infrastructure projects at least
partially funded by the U.S. Government and have employees currently
earning less than $10.10 per hour, of course, the answer is yes.
That is, so long as the President's action holds up to legal scrutiny. However, it
may not. The authority to make this change belongs to the Secretary of Labor,
not the President. Congress explicitly granted this power to the Labor
Secretary under two statutes: the Davis-Bacon Act and the Service Contract
Act, which have been on the books since 1931 and 1965, respectively.
Those laws require the Labor Secretary to set multiple minimum wages for
those federally funded contract workers, taking into consideration overall
local labor market conditions and variations in prevailing wages for the
particular jobs involved. Regulatory machinery has long been in place to make
It could take a long time for the judiciary to sort it out. Unless federal courts
start imposing injunctions preventing the order to take effect, federal
contractors will need to comply. If government contractors are a significant
factor in your area, this move could put upward pressure on wages for similar
jobs in your community.
You can read more about minimum wage law by visiting
the Department of Labor website.
States Already Acting
Meanwhile, twenty states, the District of Columbia and some municipalities
already mandate minimum wages for all employers that are higher than the
current $7.25 per hour rate. (There are exceptions for some employers.)
Washington, for example, imposes a $9.32 hourly minimum. But last
year, the state's incorporated city of SeaTac voted to raise its minimum hourly
rate to $15. Many of these states' minimum wage laws call for automatic
COLA-based minimum wage adjustments.
President Obama is also trying to use the "bully pulpit" of the presidency to
prompt employers not affected by his executive order to raise their minimum
wages out of a sense of "fairness." In his recent State of the Union
address, the President put the spotlight on a pizza restaurant owner who
raised his own workers' hourly wages to $10.10. "Tonight, I ask more of
America's business leaders to follow [his] lead… it's good for the economy. It's
good for America," the President asserted.
Back in 1938 President Franklin D. Roosevelt took a harsher tone when he
asked Congress to enact (as it did) the Fair Labor Standards Act. "No business
which depends for existence on paying less than living wages to its workers
has any right to continue in this country," he said.
So what's a living wage? MIT professor Amy Glasmeier's studies the issue, on
a county-by-county basis. She asserts that it varies between $12 and $55 per
hour. If true, there should be no expectation that the minimum wage is a
Opponents of raising the minimum
wage predict employers with a
concentration of minimum wage jobs
will be forced to lay off workers, or at
least freeze hiring. People on the
other side of the argument, including
many economists, argue that higher
minimum wages can help business
by improving productivity and
retention, for example, and that
fears of mass layoffs are overblown.
The simplest, and perhaps most superficial, argument is that paying higher wages
will put more money in workers' hands, which they will promptly spend and
stimulate the local economy. Henry Ford believed paying higher wages would
force other business to do the same, making cars suddenly affordable to the
average laborer's family, expanding the demand for his products. It worked out
that way for Ford, who also fiercely opposed labor unions.
The fact that raising wages will remove that higher payroll increment from the
wallets of business owners is considered less consequential in the view of some
economists, because they assume those not living on the margins can save and
invest a higher proportion of their earnings. Of course, this assumption may still
be a tough sell to those who are negatively impacted by the raise.
Another argument, more appealing to business owners, has been developed by
University of Massachusetts economics professor Arindrajit Dube. He points out
that the proportion of teenage minimum wage job holders is small and declining
-- from 26 percent in 1979 to 12 percent in 2011. This suggests a higher minimum
wage would not be lost on a demographic segment that may need it the least.
His research examines, among other things, the cost (to employers) of
employee turnover, which generally is high with minimum wage positions.
When minimum wages go up, overall employment in low-wage job sectors
doesn't change significantly. What does change, though, is that turnover "falls
sharply," according to Dube. Employees, for whatever reasons, stay put
You can test that conclusion against your own business experience, while also
analyzing what it costs you to cover a vacancy when someone quits, and find
and train a new employee. For some, depending on the circumstances, it may
eventually turn out the net cost of paying a higher wage is actually a negative
number. Or at least not as much as a payroll increase might suggest.
14550 Torrey Chase Blvd., Ste. 360 Houston, TX 77014 USA
E-mail : firstname.lastname@example.org