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Minimum wage of $10 would cost ‘significant’ job loss, according to CFO survey

By the end of 2014 the number of states with a minimum wage higher than the national rate of $7.25 will be 21.
By the end of 2014 the number of states with a minimum wage higher than the national rate of $7.25 will be 21.
Courtesy LLC

On Thursday, Illinois Republican U.S. Senate candidate Jim Oberweis proposed an increase in the Illinois minimum wage to $10 an hour for workers 26 years old or older that would take place over a period of three years beginning with an increase to $9 on Jan. 1, 2015 from the current $8.25. This is the most recent indication that Republicans recognize that minimum wage is going to be a key issue in the 2014 election cycle.

As the debate over a minimum wage increase is sure to intensify as the November elections draw near, you can be sure that the rhetoric is sure to reach a fevered pitch. While the argument for those that favor an increase to $10.10 per hour is that the increase would pull hundreds of thousands of people out of poverty, a recent survey of chief financial officers suggests that layoffs would occur and hiring would slow as a result of an increase in the minimum wage at a time when the economy is in the midst of anemic recovery that is hovering around 2 percent.

The Duke University / CFO Magazine Global Business Outlook Survey found that more than 44 percent of service firms said they would slow hiring if the minimum wage increased by that much, while almost half (47%) of the retailers surveyed and approximately one-third of manufacturing companies said they would do the same.

John Graham, a finance professor at Duke’s Fuqua School of Business and the director of the survey, said that “While a hike in the minimum wage would help low wage workers who retain their jobs, the unintended negative consequence of job loss would be borne by this same group of workers.”

A Congressional Budget Office estimates a raise of that amount would result in a loss of 500,000, while increasing incomes for more than 16 million Americans. The CBO analysis includes a look at the impact of an increase to $9.00 per hour, and reveals that less than 100,000 jobs would be lost at that level while more than 7 million people would see increased income.

The GBOS reports that 90 percent of CFOs in the retail, service and manufacturing industries say that an increase to $8.50 nationally from the current $7.25 would not decrease their hiring plans. It seems the debate should be about what level of increase is acceptable, not whether there will be an increase.

Business is now on the record in support of an increase of $1.25 per hour, while labor has put a $2.85 per hour hike on the table, so why are there no negotiations taking place to find a middle ground?

If this wasn’t an election year there would be discussion to find a rate between $8.50 and $10.10 an hour that could be agreed upon and Congress could actually get this done in a responsible way. But it is an election year so the likelihood that anything, responsible or otherwise, will get done on a minimum wage increase is somewhere in the range of one’s chances of winning the lottery.

The failure to reach agreement on this issue is sadly due entirely to politics. While both Democrats and Republicans agree that an increase is needed, neither side is willing to negotiate the amount of an increase during the run up to the next election.

The problem is that there is always the next election.

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