By Sarah Robinson/NEMS Daily Journal
In the State of the Union address Tuesday, President Barack Obama laid out his plans to spur national economic recovery, with one proposal potentially impacting millions of businesses nationwide.
Obama claimed that a couple with two children who both make minimum wage at the current rate still live under the poverty line in America.
“No one who works full time in the wealthiest country in the world should have to live in poverty,” he said.
He proposed raising the national floor for wages from its current $7.25 an hour to $9 an hour, in stages, by 2015. After that, his plan would call for a built-in mechanism to keep up with inflation.
Pete Poland, owner of Landscape Services in Tupelo, said if the raise is phased in, it would not have a major impact on his business.
“You can’t keep people at minimum wage in our industry,” he said.
Poland said although he starts workers at minimum wage, within weeks almost all move up to a higher rate. All of his current employees earn at least the new proposed minimum rate. However, he said starting people at $9 an hour would be difficult.
Bob Knight, owner of Todd’s Big Star in Tupelo which has more than 80 employees, said he is not completely sure how an increase in the minimum wage would affect his business yet. He said there is still a great deal of uncertainty surrounding federal insurance coverage requirements that need to be sorted out.
“You have to factor labor costs into the cost of goods,” he said.
He said even though he doesn’t have a full understanding yet of how the increase will be structured, he does believe it will inevitably impact prices.
John Moen, chairman of economics at the University of Mississippi, said an increase is likely to have a profound impact on the youngest segment of the workforce, as businesses may be less inclined to hire younger, inexperienced workers at the higher rate.
At the current rate, a worker earns $290 in a 40-hour work week, before taxes. That comes out to roughly $14,500 a year. The White House said the raise would benefit some 15 million workers.
The last minimum wage increase went into effect in July 2009. The rate was raised over a three-year period, starting in 2007, from $5.15 an hour.
The Fair Labor Standards Act was signed into law by President Franklin D. Roosevelt, creating the national wage requirement in 1938. The first rate was 25 cents per hour for a 44-hour work week.
For some businesses, the new proposal would be a big increase in payroll expenses in a time where profit margins are shrinking due to rising fuel costs and sluggish earnings.
Cindy Nagnuson, a spokesperson for the National Federation of Independent Businesses, said Obama’s proposal indicates “he doesn’t really understand small business.”
The NFIB said an increase in the minimum wage rate would be detrimental to small businesses already overwhelmed by new regulations and benefit requirements.
Nagnuson warned that raising the minimum wage would increase unemployment and harm the middle class.
Obama argued the move would help improve business because those earning a higher minimum wage will spend more.