February 14, 2013

Our View: Minimum wage hike would boost economy

Putting money in the pockets of people who would spend it would lead to faster growth.

President Obama surprised the experts Tuesday with a new plan to spur economic growth and close the widening income gap: increase the minimum wage.

It is the right policy direction for the nation and one that Congress should follow.

Right now, a full-time minimum wage earner brings home $14,500 a year, Obama said. That's below the federal poverty line if the worker is supporting two children. Obama made this a moral challenge in his speech, saying "Tonight, let's declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty."

He proposed increasing the federal minimum wage to $9 per hour, from the current $7.25.

The increase would not only be a moral choice, but a good economic one.

During the last few years, only the top wage earners have seen real growth in income. Those at the middle and bottom have been stuck, exacerbating income inequality, which is not only bad for American democracy, but also keeps the economy from growing. Congress and the president took a step toward addressing this inequality in the fiscal cliff deal, which raised taxes on the highest earners while preserving tax cuts for low-wage earners and the middle class.

Raising the minimum wage puts money into the pockets of people who will spend it. Circulating that money through the economy will do more good than giving it to people at the top of the economy who are already consuming as much as they can and would be likely to save additional income.

Critics charge that raising minimum wages leads to higher unemployment. As proof they point to the 2006-2007 increases, which proceeded high unemployment in 2009 and beyond.

If raising the minimum wage was all that took place in those years, they might have a point. But ignoring the financial collapse brought on by a speculative bubble in mortgage-backed securities makes it hardly worth addressing. Low-wage workers were the victims of the collapse of the job market, not the cause of it.

Since the last time the federal minimum wage was increased, 19 states have raised their minimum wages. A state like Maine, which has a minimum wage of $7.50 an hour, could not afford to pass such a high increase as Obama is proposing and risk creating a competitive disadvantage.

Maine and other low-wage states need the federal government to pass the same wage increase for everyone, so all states can benefit.

Correction: This story was revised at 12:15 p.m., Feb. 14, 2013, to state that President Obama proposed increasing the federal minimum wage to $9 per hour, from the current $7.25.

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