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Minimum-wage plan sparks debate

Sides divided on effect of boosting federal rate to $9

– President Obama’s call to raise the minimum wage to $9 an hour and boost it annually to keep pace with inflation is already getting a trial run. Ten states make similar cost-of-living adjustments, including Washington state, where workers earn at least $9.19 an hour, the highest minimum in the country.

In all, 19 states and the District of Columbia have minimum wages set above the federal rate of $7.25, a disparity Obama highlighted in his State of the Union address as he seeks to help the nation’s lowest paid workers.

Obama’s proposal is renewing the age-old debate between advocates who claim boosting the minimum wage pumps more money into the economy, helping to create new jobs, and business groups that complain it would unfairly burden employers and curb demand for new workers.

And it faces certain hurdles in Congress, as top Republicans including House Speaker John Boehner wasted little time dismissing the proposal.

More than 15 million workers earn the national minimum wage, making about $15,080 a year. That’s just below the federal poverty threshold of $15,130 for a family of two.

Selling his plan to a crowd in Asheville, N.C., on Wednesday, Obama said it’s time to increase the minimum wage “because if you work full-time, you shouldn’t be in poverty.”

Advocates say a minimum-wage increase can lead to even broader economic benefits.

“These are workers who are most likely to spend virtually everything they earn, so it just pumps money back into local economies,” said Christine Owens, executive director of the National Employment Law Project, a worker advocacy group.

But William Dunkelberg, chief economist for the National Federation of Independent Business, said the increase would hit businesses hard and only hurt low-wage workers by reducing demand for their services.

“The higher the price of anything, the less that will be taken, and this includes labor,” Dunkelberg said. “Raising the cost of labor raises the incentive for employers to find ways to use less labor.”

Economists have long disputed the broader impact of setting a minimum wage. A major 1994 study by labor economists David Card and Alan Krueger found that a rise in New Jersey’s minimum wage did not reduce employment levels in the fast food industry. Krueger now is chairman of the White House Council of Economic Advisers.

Yet that study has come under fire from other economists, who argue that comparing different states over time shows that raising the minimum wage hurts job growth.

Mark Zandi, chief economist at Moody’s Analytics, said that a higher minimum wage would boost incomes for some poorer workers. But it would also discourage employers from hiring more of them.

“So on net, I am not sure it helps,” he said.

The government first set a minimum wage during the Great Depression in 1938. It has been raised 22 times since then – the last increase went into effect in 2009 – but the value has eroded over time because of inflation.

Obama’s latest plan would raise the minimum to $9 by 2015 and as well as increase the minimum wage for tipped workers, which has not gone up for more than two decades.

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