Obama's Minimum Wage Ploy Hurts the Working Poor

NEW YORK (TheStreet) -- President Obama put his political fortunes ahead of the least prosperous citizens by badgering Republicans in Congress to raise the minimum wage to $10.10 an hour.

In 1938, Congress established the federal minimum wage and has periodically raised it to accommodate inflation. Currently at $7.25 per hour, it appears woefully inadequate to fair-minded Americans, and the president feeds this sentiment by carping that it's worth 20% less than when Harry Truman was president.

What Obama doesn't tell voters is the minimum is sometimes paid to teenagers bagging groceries and college students on work-study jobs that are essentially masked financial aid. Moreover, adults earning the lowest wages have sources of income not available in Truman's days -- an earned income tax credit, food stamps and Medicaid. And employers of domestic workers now fund social security pensions and unemployment insurance -- an additional 8% in compensation generally not offered in Truman's time.

Liberal newspapers and cable networks are fond of rolling out single mothers, seemingly following the script of union-supported community activists and organizers, who recount they cannot afford to eat earning so little at McDonald's (MCD). Yet, they hardly ever appear malnourished, and correspondents never get around to asking how they use their food stamps or about child support payments they might receive.

Except for apologists for farmers that don't farm and academics hanging off the left edge of reality, economists don't like price fixing, whether perpetrated by unscrupulous businesses or politicians buying votes. After all, agricultural supports raises the price struggling mothers must pay for milk, clothing and other essentials for their families. The minimum wage makes hiring workers more expensive, eliminates jobs at the bottom of the ladder, and generally slows growth and raises unemployment.


Economic studies show that periodically raising the minimum wage to keep pace with inflation creates little additional harm; after all, that is not much different than the raises most other Americans receive as prices rise. However, what Obama is proposing is a wholly different matter.

Congress last adjusted the federal standard in 2009. Since, consumer prices are up 9%, but the president is proposing a 39% jump. Along with higher taxes and health insurance costs (thanks to ObamaCare), most businesses will be compelled to substitute more technology for workers. Drug stores, grocers and McDonald's, for example, can make greater use of computerized check out and order taking, and even impose premium prices on patrons who insist on dealing with clerks directly.

McDonald's is already challenged by an inability to raise prices because working-class Americans can't afford to pay another dollar for lunch.

Across the board, small value-priced restaurants and hotels will do less business or close, and others in the planning stages will never open. Ask the folks in the lodging business in Sea-Tac, Wash., where the city council has hiked the local minimum beyond what the market can reasonably bear.

Obama understands Republicans in Congress, who care about creating jobs and growth, cannot happily approve a huge increase to $10.10. Hence, he gets to run around the country fashioning Democratic candidates in the fall elections as champions of justice, and the GOP leaders as throwbacks from the Age of Dickens.

To this economist, like it or not, a minimum wage is a fact of life. Raising it to keep pace with inflation and a bit more to $8.25 won't affect employment much.

Giving the president a political victory by raising it further will only serve to deny hundreds of thousands of the working poor decent jobs. In the meantime, his politically motivated campaign blocks a reasonable adjustment and keeps those earning the least from getting a raise.

Peter Morici is an economist and professor at the University of Maryland Robert H. Smith School of Business.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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