Obama's minimum wage proposal gets mixed reaction

(CBS News) President Barack Obama's biggest proposal Tuesday night for working Americans is something the government wouldn't have to pay for -- an increase in the minimum wage from $7.25 to $9.

There are 19 states, plus the District of Columbia, that have a minimum wage higher than the federal rate, but only one -- Washington state -- pays $9 or more. Those who would have to pay for the proposal had the reaction you might expect.

Restaurant owner Joe Picca
Restaurant owner Joe Picca
CBS News

At Cafe Joey's Italian Restaurant in Aubrey, Texas, owner Joe Picca is not OK with the president's proposal to increase the minimum wage.

"Right now, we're barely making ends meet as things stand right now," he says.

Picca has 13 employees at his restaurant; five of them earn minimum wage. Picca says the higher costs would be crippling.

"I have actually a couple of choices -- two choices," Picca says. One is to close down. The other choice is to increase prices."

But even if the minimum wage is raised to $9, the income of a family of four with one worker would still be nearly $5,000 under the poverty line of $23,550 -- although federal tax credits would ultimately bring the family slightly above that level.

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"We need an economy where customers can afford to spend," says Paul Sonn, who studies wage trends for the National Employment Law Project.

He says there is evidence that raising the minimum wage would benefit the economy.

"The Chicago Federal Reserve Bank modeled the impact of a dollar minimum wage increase and found it resulted in very substantial boosts in consumer spending in lower income communities," Sonn says.

That 2011 study by the Chicago Fed found an overall increase in spending of $2,800 by households with minimum-wage workers.

"It works just like a tax cut for low-wage workers," Sonn says. "It gives them more money in their pockets to spend at local businesses."

If the federal minimum wage had kept pace with inflation, studies show it would now be $10.56. The White House says a $9 minimum wage would only bring buying power back up to 1981 levels.

  • Anthony Mason

    CBS News senior business and economics correspondent; Co-host, "CBS This Morning: Saturday"

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