In his State of the Union address, President Barack Obama called for an increase to minimum wage, from $7.25 to $9.00 per hour by the year 2015. The idea has fueled its share of backlash and conflict, including a heated debate about how it will impact the average American business.

Calling All Experts

According to a recent Reason-Rupe poll, two-thirds of Americans are in favor of Obama’s wage increase, although this number drops to 37 percent if the wage bump causes businesses to lay off workers as a result of the change. The numbers are split on job outcomes, with 42 percent expecting a lower number of jobs overall, 41 percent believing no change will result, and 13 percent predicting an increase. Meanwhile, a poll of economic experts from Chicago Booth found that over half (when weighted by the expert’s confidence) agree the risks of raising the minimum wage and indexing it to inflation are outweighed by benefits to low-skilled workers.

The Business Bottom Line

There’s some debate on the ultimate impact of a minimum wage increase for American business. A Texas A&M study found that layoffs and turnovers won’t increase, but hiring may slow down as the cost to add new staff increases. However, in a USA Today piece on Feb. 24, Sen. Tom Harkin (D-IA) argues that there are several benefits to raising wages, which are intrinsically linked to the health of businesses.

The first is a loss of minimum wage purchasing power, down 31 percent since 1968. The result is a significant number of workers whose families end up below the poverty line, and therefore don’t spend as much money on consumer goods. But more money for low-income families translates to $1.31 spent with every $1.00 of general government stimulus, according to Analyst Mark Zandi. In other words, this is good news for business. Senator Harkin also believes that bumping wages up above $9.00 to $10.10 over the course of several years will produce 100,000 jobs as a direct consequence of consumer spending.

As a part of an overall stimulus effort, President Obama’s proposal has not only broad expert approval, but may eventually act as a bottom-line benefit for businesses of all sizes.

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