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5 Side Effects of Obama’s Wage Hike
It’s been a good three months for proponents of a nationwide minimum wage hike.

First came the State of the Union address Jan. 28, in which President Barack Obama announced plans to raise the federal minimum wage from the current rate of $7.25 an hour to $10.10.

A few weeks later, Obama signed an executive order that put the raise (which only applies to federal contract employees) into effect as of Jan. 1, 2015; the order also kicked off a campaign urging Congress to raise the minimum wage for all U.S. workers.

How well does this campaign jibe with public opinion on the subject? A December 2013 nationwide poll from The Washington Post and ABC News found that 66 percent of respondents support raising the minimum wage.

Although there are strong opinions on either side — proponents tout the benefits to low-wage workers, while opponents argue a wage hike would force small businesses to cut jobs and raise prices — there’s no doubt that it would ultimately impact the local population and economy.

The following list looks at five different ways raising the minimum wage would affect your daily financial lifestyle.

1. You Could Spend More Money

Though many of us would like to think that an increase in wages would translate into an increase in our bank account each paycheck, ultimately it could lead to an increase in spending, instead. Not the best news for you, though perhaps good news for the economy.

According to an analysis from The Economist, many wage hike proponents argue that an increase like the one proposed by Obama would boost the economy by raising the spending power of the poorest workers, who consume more of what they earn than any other income bracket.

To corroborate, a 2012 study from the Economic Policy Institute found that increasing the minimum wage to $9.80 an hour would create 100,000 jobs.

2. You Could Earn Higher Wages in the Long Run

It should come as no surprise that when many employers set their wages, they judge how high or low they should be based on how competitive they seem in comparison with the federal minimum wage. If an employer wants to appear generous, a wage a few dollars higher than $7.25 could seem practically magnanimous.

Yet, it’s also not surprising that the cost of living can differ greatly across the nation, and an hourly wage of $7.25 can get Americans much farther in some regions than in others. If you’re an employee who earns an hourly wage, raising the minimum wage could ensure that you receive a higher income in the long run.

“Though the minimum wage only establishes a floor, we can reasonably expect that over time raising the anchor by raising the minimum wage will ramify over a wide swath of the wage scale,” wrote Barry Schwartz in an article for Slate. “In the long run, everyone’s wages will go up. This will allow people earning wages near the bottom to manage to pay their bills, and it will allow those with higher wages to join the middle class.”

3. You Could Lose Your Job

One of the downsides to raising the federal minimum wage most often cited by critics is the loss of jobs that could follow an increase.

An April 2013 Forbes article by Michael Saltsman cites two economists who determined that 85 percent of the best research performed in the last two decades finds that a loss of jobs will occur following a minimum wage increase.

One reason for potential job loss is poor targeting, Saltsman said.

“According to the Census Bureau, roughly 60 percent of people living in poverty don’t currently work, and thus can’t benefit from a raise,” he wrote. “Of those who do work and would be covered by [a minimum wage hike], Census Bureau data show that the majority live in families far above the poverty line. Across all covered minimum wage earners, the average family income is $50,789.”

4. You Could Pay Higher Prices on Goods

Another negative consequence often brought up by those who are against an increase in the minimum wage is that the price of goods and products will go up, because restaurants and retailers are often the biggest employers of hourly wage workers.

Business Insider reported last summer that Walmart had actually halted plans to open stores in Washington, D.C., because of a new minimum-wage increase that would require the company to pay workers $12.50. However, Huffington Post reporter Caroline Fairchild did some investigative work of her own and found that a higher minimum wage for Walmart employees would only cost shoppers about an extra 46 cents per trip.

“Even if Wal-Mart decided to pass 100 percent of the cost on to customers, store prices would still only increase by 1.1%,” Fairchild wrote. And because the average customer spends $1,200 a year at Walmart, that would only amount to approximately $12 annually.

5. Your Family’s Income Could Increase

Although you might not be an hourly wage earner or have family members dependent on this type of income, numerous studies have shown that a significant portion of the U.S. population do belong in this group. And for many of these families, the sole breadwinner is dependent on hourly earnings to financially support his family.

“Overall, there is robust evidence that minimum wage increases lead to moderate increases in incomes at the lower tail of the family income distribution,” wrote Arindrajit Dube, an economics professor with University of Massachusetts Amherst, in a December 2013 paper.

A New York Times editorial pointed out that an estimated 27.8 million people would earn more money under the Democratic proposal if the federal minimum wage is raised from $7.25 to $10.10 by 2016.

“Most of them do not fit the low-wage stereotype of a teenager with a summer job,” the editorial board wrote. “Their average age is 35; most work full time; more than one-fourth are parents; and, on average, they earn half of their families’ total income.”

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