e21 Asks: State of the Union Recap

Following our State of the Union live coverage and immediate reaction, we asked readers, “Which State of the Union proposal could most harm 2014’s economic growth?” The option that received the most votes (36 percent) was “raising the minimum wage.” This was followed

by the president’s continued call for “all-of-the-above energy,” which 31 percent of readers saw as most threatening to economic growth. “Immigration reform” received 26 percent of votes. The president’s proposed “manufacturing hubs” and “higher education changes” were not seen as very harmful by our readers, as they only had five and three percent of votes, respectively. 

Before his State of the Union address, President Obama issued an executive order which raised the minimum wage of federal government contractors who work on federal projects from $7.25 to $10.10 an hour. 

Besides defending his executive order in his speech, President Obama again called for raising the federal minimum wage. To applause, he declared, “Give America a raise!” 

While some workers would receive a raise, others—mostly low-skill and young workers—would lose their jobs or not be able to get jobs at all. This makes entering the workforce and developing human capital more difficult for those who are already at a disadvantage. If workers cannot land their first job, how are they supposed to advance up the career ladder?

Fewer than three percent of American workers earn the minimum wage, and half of these are younger than 25. Teens faced a 21 percent unemployment rate in January, and the African American teen unemployment rate was 38 percent. Federal policy should not make it more difficult for these individuals to find work.

Additionally, allowing states to set their own minimum wage laws is better than a universal federal rate. Labor markets vary depending on regional economic conditions. It is more difficult to pay a gas station attendant in rural Oklahoma $10 an hour than it is to pay a Starbucks barista that same rate in Seattle. Besides, if a state wants to harm the career prospects of its young workers, people can always move. 

What was notable about energy policy in the State of the Union was not what the president said—it was what he did not say. There was not a single mention of biofuels, wind energy, or electric vehicles. This is especially surprising because wind energy had been touted in the previous three State of the Union addresses as the “industry of the future.” President Obama’s omission of green energy provides yet another clue that the “green” energy bubble may finally be bursting.

The president’s speech did acknowledge the U.S. boom in natural gas production and use, even though this has occurred primarily on private rather than federal lands. He even praised the economic and environmental benefits associated with increased natural gas production. 

However, he continued his campaign against coal. It is clear that the president will set limits on the “amount of carbon pollution our power plants are allowed to pump into the air.” The EPA has pending rules on CO2 emissions that effectively require coal-fired power plants to use technology that has never been deployed on a commercial scale if they are to stay in operation.

The administration should focus on allowing affordable energy to reach consumers. Policies that raise the price of energy disproportionately affect the poor. Those in the lowest fifth of earnings spent 28 percent of their incomes on energy—far more than the U.S. average of 9 percent, and the 4 percent spent by the top fifth. 

The president’s renewed calls for immigration reform are a welcome sign. The current H-1B visa cap for high-skilled workers of 85,000 a year is not enough to grow an economy. This limit was reached within a week last year. 

U.S. multinationals are creating more jobs offshore than in America. Increasing the H-1B visa cap would allow these companies to shift more operations back home—hiring more native-born Americans as well as immigrants.

Everyone who wants to come and work adds to our economy. For this reason, low-skill immigration should be expanded as well. Last summer the Congressional Budget Office found immigrants create net benefits to the economy. This is because they pay more in taxes than they use in services and they increase economic growth through work and entrepreneurship.

House Republicans recently released their principles for immigration reform, but some members opposed the initiative. Reforming America’s immigration system, which everyone agrees is broken, would enable the economy to grow at a faster pace. 

President Obama stressed the federal government’s central role in creating jobs—specifically manufacturing jobs. But the era of manufacturing jobs as anchors of the middle class is over. The percent of Americans employed in the manufacturing sector has been gradually declining. In the early 1940s, 39 percent of employment came from manufacturing—today that number is 9 percent. 

This is not reason for worry. Even though manufacturing’s share of GDP has declined to 12.5 percent from over 25 percent in the 1950s, GDP increased 500 percent during that period and manufacturing productivity increased over 300 percent. The president should be celebrating this progress in productivity, not wishing for a 1950s economy in the 21st century.

President Obama should have stressed the need to cut regulatory burdens that decrease business investment and entrepreneurship. This is the real path to economic prosperity, epitomized by expanding petrochemical plants and innovation in Silicon Valley, not government-created manufacturing jobs.

The president’s recommendation that private companies help create community college programs to train students for the workforce is helpful. Having the private sector work to train students is better than having elected officials determine which fields of study are “useful” or lucrative, and privileging students in those fields with lower tuition or more generous aid. These companies have better senses of the skills necessary for today’s economy. 

The president’s proposals for higher education left some questions unanswered. As college tuition continues to grow and debt loads increase, it is critical that students come out of college with encouraging employment prospects.

Tuition growth results largely from the federal loan program. Loans are given based on differences between students' financial needs and their costs tuition. Colleges can exponentially raise tuition because the federal government makes up a large part of what students cannot pay. 

The president’s plans to address growing student loan debt are underwhelming. In the past, he has proposed rating colleges on their affordability, socioeconomic diversity, graduation rates, and alumni earnings, and then providing more generous aid to schools with higher ratings. However, this system would discourage schools for enrolling weaker students, since these students are less likely to graduate. This would exacerbate inequality by keeping such students from post-secondary education.

President Obama had some helpful ideas for the economy in his State of the Union address. However, some of his proposals, such as raising the federal minimum wage and making energy more expensive, would negate any economic gains from immigration and higher education reform. With labor market problems still persisting over five years into recovery, the president should make increasing economic growth the focus of his remaining years in office.