President Obama’s State of the Union address touched on a number of issues last Tuesday. But the one sticking out for most companies is his proposal to increase the minimum wage.
There’s heated debate on both sides, but the question is: How would it affect you?
In his speech, the president proposed raising the national minimum wage standard from $7.25 an hour to $9 an hour, while also automatically adjusting the rate for inflation.
Some polls show a majority in the country support the increase and most of the left agrees with the President that this step would give a fair shake to low-income families who may struggle below the poverty line. But the discussion has been raging on and there are a number of factors at work.
Effects on hiring and retaining workers
Some businesses in the past, like Costco, have supported the idea of a minimum wage increase saying that it would boost employee retention and make workers more productive. Equipped with studies that support these claims, the White House is quick to point to companies like Costco that agree with that line of thinking.
There’s a 2006 report from the Fiscal Policy Institute (PDF) which found that minimum wage increases have benefited small businesses through:
- higher productivity
- improved worker retention, and
- savings in recruitment and training.
But the opposite can be true. For example, if a business still needs low-wage workers, then the increased cost of hiring a low-wage worker hurts the bottom-line. Then cuts are necessary in other areas, like benefits and perks that help retain employees in the first place.
Training is always a tough area for employers, too. There may be a shift toward hiring more experienced older employees instead of spending time and resources for on-the-job training. Who gets the shaft? Younger, inexperienced people.
Will it make a difference in the end?
David Rosenbaum, columnist for CFO.com, argues that raising the minimum wage is more symbolic than anything else. He shows the difference between $7.25 and $9 won’t change a low-income employee’s attitude toward their work. And even with the increase, the annual salary will still be below $19,090, the U.S. Department of Health and Human Services Poverty Guidelines for a family of three.
With changes to healthcare looming, businesses small and large are already feeling the pressure. Raising the minimum cost for help is only going to make businesses spend more. There’s no bill in making the rounds in Congress yet, but this is an issue we’ll be keeping an eye on.
What’s your take on Obama’s proposed minimum wage increase? Let us know in the comments.