President Obama is now shifting his attention to advocate for an increased federal minimum wage. According to the Guardian,
“The federal minimum wage currently stands at $7.25 an hour, or about $15,000 a year. Obama renewed his call for it to be increased, and has already indicated he will back a Senate measure to increase the minimum statutory pay to $10.10. Republicans in the House oppose the measure, which they say would be harmful to business.”
“To more than double the federally mandated starting wage wouldn’t be bad for White Castle, it would be absolutely catastrophic,” Jamie Richardson, vice president of White Castle, told CNBC’s “Closing Bell” on Wednesday.
Economist Paul Krugman, disagrees with Richardson and is pushing for increased minimum wages.
But most classical economists disagree with Krugman. When the government increases the minimum wage artificially above the market price for unskilled labor, it causes an increase in unemployment and hurts low-skilled job seekers.
Economist Thomas Sowell states in Basic Economics, “Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government mandated minimum wage, because they either lose their jobs or fail to find jobs when they enter the labor force.”
Those who are fighting against a minimum wage hike believes that a federal minimum wage law is misguided, and only helps one group of people: politicians.
Classical economists agree that increasing the minimum wage is a bad idea because it increases unemployment. An increase to the minimum wage decreases the demand for labor and increases the supply of labor which causes low-skilled workers to lose jobs and prevents others from finding new ones.
Economists like Sowell notes that Switzerland, one of the wealthiest nations, does not have a minimum wage and has a very low unemployment rate. So why do politicians, and some economists, advocate a minimum wage increase?
Sowell believes that it’s simply politics. The fact that the economic data indicates the minimum wage actually hurts low-skilled workers is not politically feasible juxtaposed with the idea of a social “safety net” for low-skilled workers.
Despite the economic data, the debate on increasing the minimum wage lives on. Princeton economist Alan Krueger told CNBC that he supports the President’s proposal to increase the minimum wage.
“I think our country will do a lot better if we have more shared prosperity,” Krueger said.
“I think we’re hurting opportunities for the next generation because the bottom half of the country has struggled so much over the past couple of decades,” the former chairman of Obama’s Council of Economic Advisers added. “Raising the minimum wage a modest amount, like the president proposed, helps lower-wage workers and I think that will be good for our economy.”