Obama's Minimum Wage Hike, Put Into Perspective

It's going to be a big boost in pay, but it won't affect that many people.

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The White House on Tuesday announced President Barack Obama would sign an executive order to raise the minimum wage for some federal contract workers to $10.10, a 39 percent increase above the current federally mandated minimum wage of $7.25. The action is a smaller example of a broader policy he'd like to enact, of a nationwide $10.10 minimum wage. The proposal is garnering a lot of attention, but here's a look at exactly how big of a deal it is (or isn't).

It's (Almost) Historically High

A minimum wage worker today makes $7.25 per hour, roughly the same as a worker made in 1950, when that year's minimum wage of $0.75 per hour is adjusted for inflation.

Note: At various times, the government mandated different wages for different industries. The above graph reflects the highest federally mandated wages at any given time.

A minimum wage of $10.10 would be just shy of the nation's highest minimum wage yet, 1968's $1.60 per hour, which in 2013 dollars is around $10.71. In the above graph, the new federal contractor minimum wage is added on at the end, and is a notably large jump from the current level. If the national minimum wage were to move from $7.25 to $10.10, it would be the second-biggest one-year change in the minimum wage. The largest was in 1950, when the wage jumped by 87.5 percent, from $0.40 to $0.75.

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It Won't Help That Many People

Some sources have cited the figure of 2 million – that's one estimate of how many people will be affected by the hike. At first glance, that sounds huge, considering that 3.6 million Americans 16 and over are paid at or below the minimum wage.

However, 2 million federal workers will not see their paychecks grow as a result of the order. The increase will only affect new contracts that start after the order, so some workers may not see their wages go up for a while. In addition, a September letter from 15 Democratic senators urging the president to take this action estimated that only 28 percent of federal contractor employees, or around 560,000, earn $12 per hour, likely meaning far fewer are at or below that $7.25 level, or even the $10.10 level.

That said, raising the minimum wage in and of itself can drastically raise the number of people affected. If the federal minimum wage grew to $10.10, suddenly not only the current minimum wage-earners (at $7.25 per hour) would be affected, but all of the $8 and $9 per hour workers likewise would slip below that bar and would need a raise. According to the Economic Policy Institute, a progressive economic think tank, 30 million Americans would get raises in this circumstances. 

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It Will Create Plenty of Arguments

Raising the minimum wage in any context raises questions about the economic knock-off effects. Opponents of higher minimum wage often argue that the costs will be passed on to consumers (which in the case of federal contractors would be the government and therefore taxpayers). The White House argues that this is not the case.

"We believe that this action will produce good value for the federal government," says a White House official in an email to U.S. News. "Higher wages will attract higher-quality workers who are more productive, reduce turnover, which can significantly offset the cost of providing higher wages."

The economic arguments of the minimum wage are well-worn, but another line of criticism has emerged surrounding Obama's method of enacting this policy.

Rep. Steve King, R-Iowa, told CNN Tuesday that the president's use of an executive order to raise wages is a "constitutional violation."

"This threat that the president is going to run the government with an ink pen and executive orders, we've never had a president with that level of audacity and that level of contempt for his own oath of office," King added.

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