TERRE HAUTE — Thursday marked the fifth anniversary since the federal minimum wage was increased, a wage U.S. Secretary of Labor Thomas E. Perez contends should again be raised.
Perez backs a White House move to raise the wage to $10.10 per hour, up from the current $7.25 per hour.
“It’s been exactly five years since workers at the bottom of the income ladder have gotten a raise. Since then, the cost of a gallon of milk, a week of child care, a month’s rent and everything else a working family needs has gone up,” Perez said Thursday in a release, “But the federal minimum wage remains frozen at $7.25 per hour.”
Perez said an increase to $10.10 per hour would benefit 28 million people, and 3.8 million people would earn enough to no longer need food stamps. President Obama, through an executive order, has already mandated the higher wage for workers under federal service contracts.
Indiana and Kentucky each have minimum-wage rates of $7.25 per hour while Illinois is $8.25. Michigan is $7.40 per hour while Ohio is $7.95, except for employers grossing $292,000 or less, who then pay $7.25 per hour.
Twenty-two states and the District of Columbia have minimum wage rates above the national rate of $7.25 per hour, and by the start of 2015, that will increase to 26 states and the District of Columbia.
The minimum wage was raised annually from 2007 to 2009, first to $5.85, then to $6.55 and to $7.25 in 2009.
However, raising the minimum wage is not an effective way to target those in poverty, said Douglas Holtz-Eakin, former director of the Congressional Budget Office and former chief economist of the Council of Economic Advisers. Holtz-Eakin is now president of the Washington, D.C.-based American Action Forum.
Less than 2 percent are working at the federal minimum wage, Holtz-Eakin said Thursday, “and they are typically concentrated in retail sales or eating and drinking places.”
While the employment effects of a higher minimum wage for the nation as a whole are pretty minimal — because it targets retail sales and food services — the impact to those sectors would be significant, Holtz-Eakin said.
“As an example, the [Congressional Budget Office] said Obama’s proposal to raise the minimum wage would cost about 500,000 jobs. Those 500,000 [fewer] jobs while it is not much of 150 million people working in the United States, is about a year’s worth of job growth for retail and restaurants,” Holtz-Eakin said.
“So, if you are one of those people, that is bad news,” he said of the job losses.
In addition, a minimum wage raise would negatively impact teen unemployment, which is just under 20 percent nationally.
“You would not see wholesale firings; that caricature is probably wrong,” Holtz-Eakin said. “What you would see is people not get hired. There are a lot of people out of work trying to get hired. That is the job impact.”
Raising the minimum wage would move about 900,000 people out of poverty, “not many when you have 45 million officially in poverty,” Holtz-Eakin said. “The question has to be: Is it worth it to disadvantage the chances of people out of work to get into work in order to raise the wages for people who may not be in poverty? I personally always say the answer to that, especially now, is no.”
Wage advocates, such as Business for a Fair Minimum Wage, contend the raise would benefit small businesses. In a June poll, commissioned by the organization, 61 percent of small business employers support increasing the wage in three stages over a 21⁄2 year period, then adjusting it annually to keep pace with the cost of living.
The poll stated 58 percent of employers say that raising the minimum wage would increase consumer purchasing power, with 53 percent saying it would lower employee turnover and increase productivity and customer satisfaction.
A statement signed by more than 600 economists, published in January by the Economic Policy Institute, stated that research now 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. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”
However, reaction among some Terre Haute business owners and a business leader is just the opposite.
Steve Witt, president of the Terre Haute Economic Development Corp., said he does not favor a government-mandated wage.
“I definitely think it would lead to higher costs for employers and ultimately lead to higher unemployment,” Witt said. “I have always believed that the marketplace should set wage rates, not government edict.”
Witt, who works to bring new industrial and commercial jobs to the Wabash Valley, said the discussion of the minimum wage “usually doesn’t come up in our discussions with companies” because industry pays higher than the minimum wage.
Witt said while industry does consider wage rates, it often focuses more on location, proximity to customers and suppliers, along with taxation rates, costs of energy and other factors when looking for a new development site.
Timothy Popoff, a manager at Cackleberries restaurant in Terre Haute, said “while the wage increase sounds good, people in small business will have to cut back on workers and let people go.”
“It would hurt here,” Popoff said. “It sounds good, but it is not. I think it is just a way to generate more money for the government as it would move people up into a higher tax bracket.”
Jennifer Bledsoe, owner of Footers Pizza in Terre Haute, said she thinks if the minimum wage is raised, it will “have a trickle-down effect for us. Our food suppliers now charge a fee. If the minimum wage is raised, they would have to pay more for their people, which would push that increased cost onto us for food [delivery], so then we would have to raise our prices,” Bledsoe said.
“I would be forced to push that onto customers,” Bledsoe said.
Holtz-Eakins suggests boosting a federal earned income tax credit would be more effective than raising the minimum wage. That credit went to 27.9 million low- and moderate-income working families in 2011. If the worker’s wage exceeds the federal income tax liability, the IRS refunds the balance to the taxpayer.
“There is good reason to think if we beef that up, for especially single males and women without kids, we would get some real benefits. It is a lot of those males who are not working right now,” Holtz-Eakins said.
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