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Editorial: Overdue Pay Raise; Obama’s Proposal on Minimum Wage

President Obama’s proposal to increase the minimum wage from $7.25 an hour to $9 an hour over three years probably will prove controversial, but it shouldn’t. It’s good economics, good social policy and good politics.

The most obvious beneficiaries would be the 15 million low-income workers whose wages would increase. They need it. As the president pointed out in his State of the Union address, “a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.”

Both New Hampshire and Vermont workers would benefit. New Hampshire’s minimum wage is at the federal level, while Vermont’s is $8.60 per hour this year. (Both states have lower hourly minimum rates for workers under age 20 during the first 90 days of their employment; for full-time high school and college students working part-time at certain employers; and for workers who receive tips, among others.)

Increasing the federal minimum wage would also help to address, albeit in a modest way, the sharp rise in income inequality that Obama has been seeking to moderate. The White House says that increasing the minimum wage by $1.75 an hour would be enough to offset roughly 10 to 20 percent of the increase in income inequality since 1980. Between 1980 and 2011, a period of wage stagnation or worse for many working people, the share of income garnered by the top 1 percent of earners doubled from 10 percent to 20 percent, and the top 10 percent of earners got 98 percent of all income gains between 1980 and 2008. So there’s a big element of fairness involved in increasing the wages of the lowest-earning workers.

It’s also worth noting that the minimum wage has lagged behind inflation for many years, so that it is now substantially lower than it was during the 1960s in real terms. Obama proposes to index the minimum wage to inflation, as Vermont does, once it reaches $9 per hour. This makes a lot of sense because it removes the issue from the political arena.

We suspect that owners of small businesses will be none too happy about this proposal, and we can understand why, particularly at a time when the economy is still struggling to recover from the after-effects of the Great Recession. But doesn’t it make sense to get more money in the pockets of people who can be depended on to spend it? It seems to us that the missing factor in the recovery is consumer demand, and that this is an effective way to stimulate it.

The argument that raising the minimum wage will cost jobs is logical, but research strongly suggests that there is little negative effect, perhaps because employers’ decisions to hire and fire employees are subject to all the human complexity involved in any relationship.

There’s also an intangible factor in the argument for raising the minimum wage. Work is a major element in how people perceive their identity and in their sense of self-worth. There are many ways in which the value of work is measured, but one is whether workers view their compensation as fair. To the extent that they do, society benefits as well as the individual, whose motivation and productivity are spurred by the prospect of moving up the economic ladder.