President Obama’s recent State of the Union touched upon a multitude of initiatives aimed at redistribution of wealth in America. From an increase in the taxation of America’s wealthiest to an increase in programs meant to bolster low-income earners, America has heard it all before. However, there was one initiative that took many by surprise—minimum wage.
Obama proposed to raise the federal minimum wage by 24%, from $7.25 to $9.00 per hour. This form of wealth redistribution is unique to Obama’s platform because it calls directly on business owners to pay employees more. White House officials claim that this will benefit 15 million low-wage workers in America but debate over the effects of such an increase is not so clear-cut.
Many economists and business owners alike claim that an increase in the minimum wage will lead to a decrease in the employment rate. It makes logical sense—business owners are faced with higher costs of labor so in response they ‘cut the fat’. In fact, small business owners across America are voicing their concerns. One woman who owns a limousine rental company exclaims, “There goes my business.”
However, there are two sides to every debate. Some economists turn to Britain for guidance. In 1999 an increase in Britain’s minimum wage has no measurable effect on the employment rate. Other economists even argue that an increase would lead to more jobs due to the increased spending local economies would see once low-income earners get that extra $1.75 an hour.
Regardless, the effects of an increase in minimum wage are uncertain. Surely, President Obama could find more efficient means of reducing wealth inequality in America.