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President Obama, in his State of the Union address on Tuesday, proposed raising the minimum wage from its current level of $7.25 per hour to $9.00 per hour.
It’s a policy that typically polls well, even though its economic impact is questionable at best, and likely ends up hurting the very people it is intended to help. In particular, new employer restrictions imposed under Obamacare could ultimately negate any positive impact that increasing the minimum wage would have on workers.
For example, an employee earning minimum wage and working a full 40 hours per week currently takes home a gross pay of $290 per week. In theory, a $1.75 minimum-wage hike would increase that employee’s gross pay to $360 per week.
However, that’s only if that employee continues to work 40 hours per week, a scenario that will become increasingly less realistic under Obamacare, which gives employers a huge incentive to cut worker hours.
Under the new law, businesses must offer health insurance to “full-time” employees, defined as anyone who works at least 30 hours per week. Minimum-wage employers such as Wendy’s and Taco Bell are already reducing employee hours below that threshold in an effort to control costs.
Many businesses are likely to follow suit. In one recent survey by the consulting firm Mercer, half of businesses contacted said they planned to restructure so that fewer employees would work 30 hours per week.
That employee earning minimum wage is slightly worse off earning $9 per hour, 29 hours per week ($261 gross pay per week), than he is under his current situation ($290 per week).
That’s one way of looking at it. On the other hand, the minimum-wage increase Obama is proposing would, under this scenario, come close to alleviating the negative effect of Obamacare on the employee’s paycheck. Without the increase, the employee working 29-hour weeks would take home just $210 per week with the current minimum wage.
In effect, the president has proposed to mitigate the unintended consequences of massive federal regulation (of health care) with more federal regulation. And if Congress ultimately approves a minimum-wage hike (a big if), a policy that will certainly involve unintended negative consequences of its own, Democrats will no doubt come up with another federal regulation to solve those problems. It’s that easy!