Delivering the State of the Union address Tuesday night in Washington, President Barack Obama espoused a large number of dreams he would like to see in the United States, but the question of if they’re obtainable or even realistic is debatable.
One of his ideas includes increasing the minimum wage to $9 from $7.25 and to automatically tie it to inflation. By tying the minimum wage to inflation it would rise along with the cost of living. This move by the president is being targeted for janitors, caregivers, cooks, retailer workers and other minimum wage workers.
The president’s proposal would be introduced in Congress sometime in 2015. If passed by the Republicans and Democrats, it would increase the wages of approximately 15 million Americans, according to White House estimates.
“Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9.00 an hour,” the president stated. “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.”
Neither Kentucky Republican Senator Rand Paul nor Florida Republican Senator Marco Rubio directly commented on the minimum wage hike proposal in their rebuttals. They did, however, chastise the growth of government and argued against budget deficits, the increase in spending and the complicated tax system.
“The President does a big “woe is me” over the $1.2 trillion sequester that he endorsed and signed into law. Some Republicans are joining him,” said the Tea Party Kentucky Senator. “Few people understand that the sequester doesn’t even cut any spending. It just slows the rate of growth. Even with the sequester, government will grow over $7 trillion over the next decade.
“Only in Washington could an increase of $7 trillion in spending over a decade be called a cut.
During the presidential campaign, Obama pledged to raise the minimum wage to $9.50 and index it to inflation. This is the first time that the president has discussed the minimum wage since being reelected.
Economic Collapse News reported in December that 10 states will be instituting minimum wage hikes. The states that will be increasing the minimum wage on average by 10 or 15 states are Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Rhode Island, Vermont and Washington State.
Although the idea of helping the poor is noble and well-intended, many economists of the Austrian persuasion argue that some of these measures that are designed to lift people out of poverty actually do the opposite. For instance, minimum wage laws in the United States force employers to discriminate against workers who have little to no skills, such as immigrants, the uneducated or the youth.
Furthermore, at a time when the economy remains weak and the costs of Obamacare are soon to be applied, a hike in the minimum wage could hurt small businesses. This would lead these companies to reduce hours for its employees, forgo the goal of expanding and not providing employment opportunities to the young and old in the future.
Tuesday’s speech comes as the country continues to debate income inequality, a topic that was widely talked about during the 2011 Occupy movement that captured media attention when millions of people across the globe marched the streets and occupied public and even private venues.
This is another premise that is flawed, according to some economists. When looking at the published data, it can be concluded that the rich are getting richer and the poor are getting poorer. However, what should be understood with economic data is that Americans start off poor but then they get richer over a period of time.
Another significant aspect is who actually encompasses the income distribution. Young people, whether they’re teenagers or recent post-secondary graduates, and immigrants enter the income distribution at low levels, but gradually become wealthier. Therefore, these individuals become the new poor, while the old poor slowly transition into affluence as the years go by.
Like most data reported on in the media, they don’t provide absolute incomes. If someone has a smaller share of the national income it doesn’t necessarily mean that they are absolutely poor. For instance, if someone is asked would they prefer to have a quarter of a pie or one-third of a pie, an answer would depend on how big the pie is in the first place – a quarter of the pie would be better if the pie was larger than having a third of the pie if it was smaller.
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