Will Obama's State of the Union minimum wage push help economy?

Published: Wednesday, Jan. 29 2014 12:20 p.m. MST

President Barack Obama talks with Dora Martinez, a baker at a Costco store in Lanham, Md., before he spoke about raising the minimum wage the morning after his State of the Union at the Capitol in Washington, in this Wednesday, Jan. 29, 2014 file photo.

Charles Dharapak, Associated Press

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In President Barack Obama’s State of the Union address last night, he promised a “year of action.”

As quoted in the New York Times, he said, “The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by, let alone to get ahead. And too many still aren’t working at all. So our job is to reverse these trends.”

Prior to his annual speech, the president announced an executive order that raised the minimum wage for future federal contract workers to $10.10 an hour.

Would an increase in the minimum wage for all workers help the economy?

According to CNN Money’s Katie Lobosco, the answer is yes.

“When there's a minimum wage increase, some small business owners will raise the pay for most, if not all, hourly workers in order to preserve their wage structure and retain quality employees,” Lobosco wrote. She said economists claim there is a ripple effect and an increase in the minimum wage “spills over” to those earning higher wages.

According to the Washington Post’s Robert Samuelson, the Democrats propose raising the federal minimum wage for all workers to $10.10 by 2016, but economists disagree on the job effect. He asked whether or not businesses would take it in stride or would they react by cutting jobs.

He cited that economists David Neumark and J.M. Ian Salas of the University of California at Irvine and William Wascher of the Federal Reserve determined that higher minimum wages weaken low-wage employment. “Under plausible assumptions, even a small effect implies nearly a million fewer jobs over three years,” Samuelson wrote.

The Economic Policy Institute released a letter urging lawmakers to raise the minimum wage and, according to the Huffington Post’s Jillian Berman, 600 economists have now signed it.

Berman wrote that the letter “states that the ‘weight of evidence' shows that “increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.’”

However, The Economist noted that, historically, economists have been worried that a minimum wage would reduce employment.

“Firms will hire all the workers it makes sense to hire at prevailing wages, the thinking goes, so any minimum wage that forces firms to pay existing workers more will make those jobs uneconomical.”

Erik Raymond is experienced in national and international politics. He relocated from the Middle East where he was working on his second novel. He produces content for DeseretNews.com. You can reach him at eraymond@deseretdigital.com and @RaymondErik

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