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Why Obama's minimum wage proposal will hurt working poor

President Obama has been campaigning around the country, since his State of the Union, for Congress to raise the minimum wage to $10.10 an hour.

In 1938, Congress first established the federal minimum and has periodically raised it to accommodate inflation. 

Currently at $7.25 per hour, it appears woefully inadequate to fair-minded Americans, and the president feeds this sentiment by carping that it’s worth 20 percent less than when Harry Truman was president.

What Obama doesn’t tell voters is the minimum wage is often paid to teenagers bagging groceries and college students on work-study jobs that are really masquerading as financial aid. 

Economists don’t like price fixing—whether perpetrated by unscrupulous businesses or politicians buying votes. 

Moreover, adults earning the lowest wages have sources of income not enjoyed in Truman’s days—an earned income tax credit, food stamps and Medicaid. And employers of domestic workers now fund social security pensions and more unemployment insurance—an additional 8 percent in compensation generally not offered in Truman’s time.

Liberal papers and cable networks are fond of trotting out single mothers, whose words are typically scripted by union-supported community activists and organizers, who recount they cannot afford to eat because they are earning so little at places like McDonalds. 

Yet, correspondents never get around to asking how they use their food stamps or about support received from their children's father.

Except for apologists for farmers that don’t farm and economists hanging off the left edge of reality, economists don’t like price fixing—whether perpetrated by unscrupulous businesses or politicians buying votes. After all, agricultural supports raises prices struggling mothers must pay for milk, clothing and other essentials for their families. 

The minimum wage makes hiring workers more expensive, eliminates jobs at the bottom of the ladder, and generally slows growth and raises unemployment.

Economic studies show that periodically raising the minimum wage to keep pace with inflation creates little additional harm—after all that is not much different than the raises most other Americans receive as prices rise. 

However, what Obama is proposing is a wholly different matter.

Congress last adjusted the federal standard in 2009. Since then, consumer prices are up 9 percent, but the president is proposing a 39 percent jump. 

Along with higher taxes and health insurance costs—thanks to ObamaCare—most businesses will be compelled to substitute more technology for workers. 

Drug stores, grocers and McDonalds, for example, can make greater use of computerized check out and order taking—and even impose premium prices on patrons insisting on accessing clerks directly.

McDonalds is already challenged by an inability to raise prices because working class Americans can’t afford to pay another dollar for lunch.

Across the board, small value-priced restaurants and hotels will do less business or close, and others in the planning will never open. Just ask the folks in the lodging business in Sea-Tac, Washington, where the city-council has jumped the local minimum beyond what the market can reasonably bear.

Obama understands Republicans in Congress, who care about creating jobs and growth, cannot happily approve a huge increase to $10.10. Hence, he gets to run around the country fashioning Democratic candidates in the fall elections as champions of justice, and the GOP leaders as throwbacks from the age of Dickens.

To this economist—like it or not—a minimum wage is a fact of life. Raising it to keep pace with inflation and a bit more to $8.25 won’t much affect employment.

Giving the president a political victory by raising it further will only serve to deny hundreds of thousands of working poor decent jobs. 

In the meantime, his politically motivated campaign blocks a reasonable adjustment and keeps those earning the least from getting a raise.

Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster award. Follow him on Twitter @PMorici1.