Economy

OECD backs Biden’s plan to raise the minimum wage

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Key Points
  • The U.S. minimum wage has been stagnant since 2009 at $7.25 an hour.
  • The OECD said the United States should also go further in improving labor market conditions.
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LONDON — The U.S. should go ahead with a plan to increase its federal minimum wage to help with a more inclusive recovery from the coronavirus crisis, the Organization for Economic Cooperation and Development said Wednesday.

President Joe Biden wants to increase the minimum pay of federal employees to $15 per hour, and an executive order for doing so could come in a matter of weeks. According to the OECD, this is critical to support low-income earners, who have been more severely impacted by the pandemic.

"In several advanced economies, the pandemic and ongoing labour market changes … brought the issue of minimum wages to the fore," the OECD said in its Going For Growth report published Wednesday.

"This is particularly the case in the United States, where raising the federal minimum wage is among the top priorities. Recent evidence suggests that increases of the minimum wage up to 59% of the median wage have little negative impact on employment," the Paris-based institution said.

"Raising the federal minimum wage would both incentivize participation and help to ameliorate earnings inequalities," it added. 

The U.S. minimum wage has been $7.25 an hour since 2009. Small business owners have said the plan to increase pay would be a burden at a difficult time.

On the other hand, some worker rights' groups have argued that Biden should do more, including step up protections for those with disabilities and better enforce workplace rights to reduce discrimination.

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The OECD also said that the United States should go further in improving labor market conditions.

This would mean supporting workers' mobility, providing more training programs and reducing red tape for people with criminal records looking to obtain occupational licenses.

"We need to make our economies more resilient, we need to make them more inclusive," OECD chief economist Laurence Boone told CNBC on Wednesday.

She added that it is important to "focus on those people that are left behind."

The United States is seen growing at a pace of 6.4% this year, according to forecasts from the International Monetary Fund. This means it is on track to surpass its pre-pandemic GDP levels this year.

But new labor market friendly policies could limit the scarring effects of the crisis and lead to more employment.