(MoneyWatch) In issuing his call for an increase in the minimum wage in, President Obama reignited an old debate: Do such well-meaning efforts actually backfire, resulting in more unemployment and hardship for people at the bottom as businesses adjust their hiring to compensate for higher costs?
Many conservative economists and businesses cite such arguments in opposing mandatory hikes, and a lot of money changes hands lobbying against them -- lobbying that usually succeeds. It's easy to forget, for example, that in his first presidential campaign, then-candidate Obama pledged to raise the minimum wage to $9.50 an hour by 2011. It never happened.
This time around, the president urged a hike from the current minimum wage of $7.25 an hour to $9 by 2015, and crucially, seeks to tie the federal minimum to inflation, so people's wages aren't eroding as prices rise.
The GOP quickly pledged its opposition to any mandated wage increase for the lowest-paid Americans. "Minimum wage laws have never worked, in terms of helping the middle class obtain more prosperity," Sen. Marco Rubio, R-Fla.,.
Beyond the usual political jockeying over the issue, businesses and employees face real world questions about how to allocate money, whether to hire, fire or make no changes.
The Cato Institute, a think tank that opposes such government intervention on behalf of workers, cites numerous studies in seeking to show that raising the minimum wage boosts unemployment, especially among young people.
Yet the National Employment Law Project, an advocacy group that favors increasing the minimum wage, has compiled statistics suggesting that the biggest employers of minimum-wage workers are not predominantly small businesses that might struggle under an increased minimum wage, but rather some of the nation's biggest employers: Companies such as Wal-Mart (WMT); Yum Brands (YUM), the owner of Taco Bell and Kentucky Fried Chicken, among others; McDonald's (MCD); and Target (TGT).
NELP also points out that many of those employers are among the corporations with high executive compensation packages.
A new paper from the liberal-leaning Center for Economic and Policy Research, citing two recent large-scale studies analyzing research conducted since the early 1990s, concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers
Studies are one thing, but business in the real world of payroll and profit margins is another. There are many examples of business leaders who believe that paying well above today's minimum wage not only does not hurt their bottom line, but helps it. Take, for example, Whole Foods Markets (WFM), led by libertarian CEO John Mackey. According to Kate Lowery, head of public relations at Whole Foods, the average non-executive hourly pay is $18.63. Executives there have argued that higher morale, presumably in part because of better pay, leads to higher productivity and lower turnover.
That sentiment is echoed at retail giant Costco (COST).
"If you have the best people in the marketplace working very hard because they're being paid better, you end up spending less on labor, not more," Joel Benoliel, senior vice president and chief legal officer at Costco, said in a recent interview. "There's a fundamental misunderstanding among many employers who focus on how little they can pay. Our philosophy is that we actually pay less for labor per hour when we look at productivity and sales per hour."
"We'd all be better off in our country if the lowest-paying jobs paid enough for people not to be on food stamps and not to be on welfare when it comes to going to the hospital," he added.