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Obama Fails On Minimum Wage Pledge

First Posted: 01/05/2012 8:24 am Updated: 01/05/2012 10:07 am

WASHINGTON -- In 2008, then-President-elect Barack Obama made an ambitious pledge as part of his agenda to fight poverty, one he claimed would help "make work pay for all Americans" in an era of widening economic inequality: By the end of 2011, he would raise the federal minimum wage to $9.50 an hour and index it to inflation, "to make sure that full-time workers can earn a living wage," as his transition team's website put it.

In effect, Obama was pushing for a 31 percent pay raise for millions of the country's lowest earners. But when they collect their first paychecks for 2012, those workers will see no such raise. The federal minimum wage remains $7.25 an hour, the same rate it's been since 2009, when the last of a series of wage bumps signed into law by George W. Bush was implemented. The cost of living continues to climb although the wage floor remains the same.

Despite his pledge, Obama hasn't exactly been stumping for the minimum wage increase. Pursuing such legislation is a long shot in the Republican-controlled House, given the opposition of business interests and free-market conservatives who argue that higher minimum wages force owners to curtail hiring. Even though the voting public generally supports raising the minimum wage, the administration might be fearful of the "job-killer" tag that inevitably would come with it. The president's labor secretary, Hilda Solis, dodged the question when asked this summer if the wage should be boosted. The Obama campaign didn't comment when asked this week if the president would recommit to the pledge.

Plenty of economists -- not to mention low-wage workers -- believe the raise is due. Because the federal rate isn't adjusted annually for inflation as many state rates are, it tends to lose some of its purchasing power every year. (Eighteen states and the District of Columbia have higher minimum wages that prevail over the federal one.) The federal minimum has been generally declining in real dollars since its high in the late 1960s. If it had kept pace with inflation since 1968, it would now stand at around $10.

The extra $2.25 an hour floated by Obama would mean a lot to workers like Fernando Gomez, 23, of Indianapolis. The minimum wage in Indiana is $7.25, as is the case in most states. Working as a full-time custodian in a hotel for the second half of 2011, Gomez took home just a couple hundred dollars each week in wages, he said. He still lives with his family since his rent check would swallow most of his income if he tried to live on his own.

Gomez wants to go to community college and maybe become a nurse someday, but he can't sock away enough money working for $7.25 an hour to cover both tuition and living expenses. And though many people refer to minimum-wage jobs as temporary or entry level, some of Gomez's colleagues have worked for years at the minimum rate, he said. Gomez recently switched to a hotel banquet worker job, but he's still earning $7.25 hourly.

"I believe it would help a lot," Gomez said of a federal rate hike. "I could maybe afford to go to school. Another dollar or two would be great."

Heidi Shierholz, an economist at the liberal Economic Policy Institute, said the economic argument for a higher minimum wage is strong, especially in a sluggish economy such as this one: An extra dollar or two in pockets of the poorest workers serves to stimulate the local economies. Such workers have little choice but to spend the money, the argument goes. Obama has made such a case when it comes to extending unemployment benefits or the payroll tax cut but has been quiet on the minimum wage.

"I get mystified by the politics surrounding all this ... but the economics says this would've been a very good time to do it, and it still would be," Shierholz said. "There's the stimulus argument: You're getting money into the hands of people who are very likely to spend it."

Without a federal rate pegged to the cost of living, Shierholz said, "it literally takes an act of Congress to get a pay raise" for minimum-wage workers. No such bill has gone anywhere in the current Congress.

Liberals hoping to see a bump in the minimum wage under Obama have at least one ray of hope: Alan Krueger, the chair of the White House's Council of Economic Advisers, is widely known for his work on the subject. A study by Krueger and his Princeton University colleague David Card in the early 1990s found that a rise in the minimum wage in New Jersey did not lead to a decline in jobs at fast-food restaurants. Within the large body of research on the minimum wage and job loss, no consensus has been reached -- and Krueger's work has been criticized by other economists -- but some recent studies have bolstered the case that modest raises are not major job killers.

Economist Dean Baker has argued that any lost work hours resulting from a minimum wage hike would be more than offset by the gain in pay for workers and higher productivity. When it comes to the politics at play, Baker compared Obama's silence on the minimum wage to his underselling of the stimulus package and how large it needed to be: "He didn't make the effort to try to educate the public as to what had to be done."

"I'm hard-pressed to see why we shouldn't have the same [minimum] wage we did in the late '60s" when adjusted for inflation, Baker said. "This isn't welfare. By definition, we're talking about people who are working. It gets a lot of sympathy from the public, and guess what? It's good for the economy right now."

Some states have taken their own initiative. This week eight states raised their minimum wages, led by Washington State, which became the first to break the $9-per-hour threshold. All eight states have so-called cost-of-living adjustments that require tweaking the minimum wage each Jan 1. The wage raises will benefit roughly 1.4 million workers.

According to an analysis by the Economic Policy Institute, the vast majority of those 1.4 million workers are not teenage part-timers, belying a widespread myth about minimum-wage earners. In fact, about 80 percent of the workers in those states are in their 20s or older, and 78 percent of them work at least 20 hours or more in a week, the institute's David Cooper wrote.

In short, a lot of them are like Gomez, the Indianapolis banquet worker who didn't get a raise with the new year.

"So many people are not able to stretch that paycheck," Gomez said. "If food and gas prices are going up, why not the minimum wage?"

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