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Wage Debate Takes the Stage

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A dozen states and cities will raise their minimum wages on Jan. 1, and efforts are afoot in Congress and several state legislatures to push through increases next year, spurring fresh debate about whether such efforts would help or hurt the already sluggish economic recovery.

The minimum wage will increase in 10 states—including Florida, Ohio and Colorado—as well as San Francisco and Albuquerque, N.M., on Jan. 1. San Jose, Calif., will raise its minimum wage in March. Ten of the increases are inflation-related triggers, while the others are because of legislation or ballot initiatives that passed this year.

Since 2009, the federal minimum wage has been $7.25 an hour, and 18 states, Washington, D.C., and several cities have higher rates. They include Washington state, where the minimum wage will hit $9.19 an hour on Jan. 1, and San Francisco, where it will rise to $10.55 an hour.

Aides for Sen. Tom Harkin (D., Iowa), chairman of a Senate labor committee, and Rep. George Miller (D., Calif.), the top Democrat on a House workforce committee, say the lawmakers plan to reintroduce legislation next year to raise the federal hourly minimum wage to $9.80 over two years and increase the $2.13 minimum wage for tipped workers for the first time since 1991 by gradually raising it until it reaches 70% of the regular minimum wage. It would also trigger automatic increases linked to the rising cost of living, a first for the federal wage.

“When working people have more money, they spend more money,” said an aide for Mr. Miller, Aaron Albright. “It helps the economy.”

The proposals, which come at a delicate time in the economic recovery with the so-called fiscal cliff already weighing on businesses, are likely to meet some resistance from congressional Republicans.

Sen. Lamar Alexander of Tennessee, who is set to become the top Republican on the Senate labor committee in the new Congress, said he is concerned a higher minimum wage would hurt employers and curb job opportunities for a disproportionate number of young, low-income minorities. Instead, education and training should get more focus to help workers of all ages “move up the economic ladder,” Mr. Alexander said. “I’m for maximum wages not minimum wages,” he said.

More broadly, opponents say minimum-wage increases hamper the economy by prompting firms to hire fewer workers, cut jobs or reduce workers’ hours.

Proponents “seem to treat these increases as if they are ‘found money’…but the reality is that the small businesses who would bear the brunt of this increase operate on very tight cash flows,” said Randy Johnson, the U.S. Chamber of Commerce’s senior vice president of labor.

Unions, some left-leaning groups and many Democrats say that raising the minimum wage is a way to address growing income inequality, show workers are valued and help growing numbers of low-wage workers in industries such as retail, restaurants and health care.

Research on the economic impact of minimum wages is mixed. Analysts at the conservative Employment Policies Institute cite a 2007 paper by economists David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve Board. The economists said a sizable majority of studies they reviewed “give a relatively consistent [although not always statistically significant] indication of negative employment effects” of minimum wages. They also said they see few, if any, studies with convincing evidence of a positive effect on employment.

Rep. Miller, however, cites a 2006 report by the left-leaning Fiscal Policy Institute that examined state trends for small businesses with fewer than 50 workers. The report found that employment and payrolls in small businesses grew faster in the states where minimum wages were above the federal level, and total job growth was faster.

Congressional Democratic aides said they are closely watching state action because it typically has been a driver for federal activity. Minimum-wage legislation is currently pending in New York, Illinois, California and New Jersey. Wage-increase supporters also say they also expect grass-roots’ minimum-wage campaigns next year in Maryland, Minnesota and New Mexico.

New Jersey Republican Gov. Chris Christie has a bill on his desk to boost the state minimum wage to $8.50 from $7.25. The measure will automatically become law if Mr. Christie doesn’t veto it. The Democratic-controlled Senate approved it despite Republicans’ concerns that it would harm the economic recovery from superstorm Sandy, and business groups have urged Mr. Christie to veto it.

Legislation in Illinois, where Democrats control the legislature and the governor’s mansion, would boost that state’s minimum wage to more than $10 from $8.25, putting it above neighboring states.

In California, another state where Democrats control the capitol, Democratic Assemblyman Luis Alejo introduced a bill this month to raise the $8-an-hour minimum wage beginning in 2014. It would reach $9.25 within two years.

New York’s Democratic-controlled assembly has approved a bill to boost the minimum wage to $8.50 from $7.25.

Greater New York Chamber of Commerce President Mark Jaffe said most members surveyed don’t consider the state’s wage proposal a hindrance to job creation. “It will spur the economy and challenge businesses to make sure they’re not wasting money in other efforts,” he said.

Supporters of increases point to workers like Tyree Johnson, a 44-year-old who works the grill and helps clean at two Chicago McDonald’s restaurants. After 20 years of being transferred among many McDonald’s outposts, “I’m still making minimum wage and living from payday to payday,” said Mr. Johnson, who makes $8.25 an hour. “It’s unacceptable.”

The high-school-educated Chicago native often falls behind on his $320-a-month rent at a men’s hotel and can’t afford health insurance or help his elderly mother. McDonald’s declined to comment, noting most outlets are franchised.

Scott DeFife, an executive vice president at the National Restaurant Association, said “any additional labor cost can negatively impact a restaurant’s ability to hire or maintain jobs.”

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