The State of the Union proposal with by far the most political juice is going to be a call to raise the federal minimum wage to $9 and index it to inflation. That would put it, in inflation-adjusted terms, back up to its 1981 level.
This is an issue people have been debating politically for a long time, and it’s no coincidence that perhaps the leading pro-minimum wage empirical study was co-authored by Alan Krueger, who’s currently chairman of Obama’s Council of Economic Advisers.* It’s interesting to think about this idea in the context of an environment where the Federal Reserve says it will allow inflation to rise to 2.5 percent, but doesn’t currently expect it to reach that level. In principle, a bump in low-wage worker wages could lead to exactly the kind of tolerated-but-not-expected inflation that the Fed has talked about.
More on this later, but for now enjoy this amateur video to accompany They Might Be Giants’ classic song “Minimum Wage”:
Correction, Feb. 12, 2013: This post originally misspelled Alan Krueger’s last name.