Business owner, economist see incremental minimum wage hike as viable path

President Barack Obama, in his State of the Union address, called for an increase in the federal minimum wage to $9 per hour by 2015. 

Economists and business owners are skeptical of a swift increase. They say there may be a better approach.

Doug Pettigrew, owner of the Michigan-based small business Electronic Brain Solutions, says he would rather see an incremental increase in minimum wage over time and potential tax breaks for businesses to offset the difference.

“I think every small business owner would tell you this, we want to grow our business, we want to make the economy thrive and we’re happy to help out,” he said. “I want to make sure somebody can be able to support their family and I think that’s very important, but let’s do it in a responsible way.”

Pettigrew’s business is looking to hire a few college students they’ve seen do great work, but who haven’t been able to find jobs. Though his new employees would start at $9, Pettigrew says, other businesses that can’t afford to increase their employee’s wages should receive some sort of subsidy.

Arin Dube, an assistant professor of economics at the University of Massachusetts Amherst, says the debate over increasing the minimum wage is ongoing, and there’s been a great deal of research already done.

“One thing that we can all agree on is that this is a really poor way to do things. It really doesn’t make a whole lot of sense to go for five, seven, eight years, as we tend to, with a stagnant minimum wage at the federal level,” he said. “And then a whole lot of people argue across the country about how to set the minimum wage.”

The best part of the president’s proposal, Dube says, is the idea to index the minimum wage to the cost of living.

Pettigrew agrees and says there needs to be a set path for changes, rather than occasional, dramatic hikes.

“I’m all for just incrementally bringing it up as necessary,” he said.

In Detroit, where Pettigrew’s business is based, he said he knew of a business that employs a large number of people, but had to cut employee hours because the business was under pressure to meet their bottom line. 

“I think if you just hit them with a huge minimum wage increase right away, that’s going to really hurt them,” he said.

But, Dube argues, most of the gains over the last recovery went to people at the very top of income earners and corporate profits are at an all-time high. Paying $9 an hour to those at the very bottom is affordable and reasonable, he said.

“We’ve looked into whether there are job losses for high impact sectors like restaurants and retail for young workers, and we’ve looked to see if there are job losses when you have a minimum wage increase during a downturn versus a recovery. And the truth is that there just isn’t any evidence that there are job losses of any detectable magnitude from the kind of minimum wage changes we’ve seen in the U.S. in the last 20 years,” he said.