An Iowa State University economics professor says the president’s executive order increasing the minimum wage federal contractors must pay employees will have little impact on most government contracts. Professor Peter Orazem says the effort to increase the minimum wage for everyone to $10.10 an hour will also have very little impact. “It’s not gonna help too many people in part because so few people currently are actually paid the minimum wage,” Orazem says. “I think in Iowa it’s actually one-point-three percent.”
President Obama used the executive order to try and prod lawmakers to pass a bill championed by fellow Democrat and Iowa Senator Tom Harkin. Orazem says too often the economic realities get lost in the political debate over the minimum wage and the impact it has on the economy. “It turns out that you have almost the same proportion of minimum wager workers in the upper 10-percent of the income distribution as the lowest 10-percent of the income distribution — because most of the people who work for minimum wager are teenagers,” Orazem says.
He says the idea that the raising the minimum wage is going to help the so-called “middle class” doesn’t add up. “If I just look at men over the age of 25, roughly three-quarters of them are paid 12-dollars-an-hour or more, which is considerably hirer than any of the proposed increases in the minimum wage,” Orazem says. “So, do I think that the middle class is gonna benefit? Probably no more or less than the lowest classes in terms of income distribution.”
He says it sounds good for politicians to say they want to give people a raise, but says assuming an increase will help workers and benefit the economy is rarely true. “The benefits sort of go across the income distribution as opposed to helping one particular segment of the income distribution. There are very few middle class workers who will get a raise as a result of the increase in the minimum wage. They are already paid well above it,” Orazem says.
Orazem says past studies have shown a negative rather than positive impact from raising the wage. For example, Iowa set its first state minimum wage in the 1990s at 50 cents more than the federal rate and also above the rate of neighboring states. He says there was a slight reduction in the number of people working after the rate was increased, but employers instead of cutting jobs were more likely to cut hours. That hurt workers who actually lost income as their hours were cut.