Obama's Minimum Wage Pledge Divides Economists, Business

President Barack Obama’s pledge to raise the minimum wage by 24 percent has divided economists and businesses who warn it could threaten recent improvements in jobless numbers.

Obama has stated that his administration plans to increase the existing minimum hourly rate from $7.25 to $9, vowing to press ahead with the initiative despite the sequester budget crisis.

Unlike other developed nations such as France, where the minimum wage is indexed to inflation and adjusted automatically each year, the rate in the United States often remains unchanged for years at a time.

The last increase, to the current level of $7.25 an hour, was introduced nearly four years ago in July 2009.

The United States has one of the lowest minimum wages of major industrial nations.

According to figures from the International Labor Organization, the US is only 38 percent of the median wage, compared with 46 percent in Britain and 60 percent in France.

For Democratic lawmakers, Obama’s proposals do not go far enough. Democrats in Congress have launched a bill hoping to raise the rate to $10.10.

Democratic House Minority Leader Nancy Pelosi said the increase — strongly opposed by Republicans — was necessary to protect middle class Americans.

Proposals to increase the minimum wage are broadly popular, with 71 percent of people backing the move, according to a Gallup poll.

Former Obama administration adviser William Spriggs, the chief economist of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), said the hike was essential.

He said the current minimum wage also exposed a gender divide in the workforce, noting that those on the minimum wage were predominantly women.

But other economists and business groups are sharply divided over the proposals.

The US Chamber of Commerce has argued the burden of any increase will be felt most by small businesses.

Michael Saltsman, research director at the conservative Employment Policies Institute, questioned whether a wage increase could be effective.

Any increase in the minimum wage is likely to be mitigated by the complexity of the American system. Many states already have their own minimum wage, with several already above the current level of $7.25, while certain employees, such as those paid tips, work under a different scale.

But Ioana Marinescu, an economist at the University of Chicago Harris School of Public Policy Studies was adamant that an increased minimum wage will “boost consumption” without adversely affecting businesses.

Obama’s minimum wage push has also found support from an unexpected quarter, with the budget retail giant Costco backing the move.