Seeing Through the CBO's Minimum Wage Fog
Harry Truman once asked for a one-armed economist in the hopes of never again having to hear "on the one hand, this" and "on the other hand, that." Given the recent Congressional Budget Office (CBO) report on the effects of the minimum wage -- one chock full of "on the other hands" -- the American people can empathize with President Truman. Even worse, both sides of the aisle are spinning the report to claim victory, creating a fog around minimum wage policy that may further discourage a Walmart-influenced Congress from taking any action. Given the miserly state of the minimum wage today, such a can't-do attitude is unacceptable. Here are five key observations about the minimum wage to help members of Congress see through the "something for everyone" fog generated by the report:
First, the Congressional Budget Office's report on the effects of a minimum wage increase to $10.10 fails to reflect the modern economic consensus on a minimum wage raise's employment effects. The weight of evidence from the economics literature has found that increases in overall business costs resulting from moderate wage increases are modest and can be absorbed by slight price increases, lower employee turnover costs, or adjusting distribution of companies' total revenues. In fact, two recent meta-studies of dozens of papers over the past years -- the first by economists Hristos Doucouliagos and T.D. Stanley in 2009 and the second by econometrics experts Paul Wolfson and Dale Belman in 2013 -- have concluded that modest minimum wage increases have little to no significant negative employment effects.
Moreover, the stimulus effects of an increase in wages to at least $10 -- monies likely to be spent promptly -- could, according to the Economic Policy Institute create as many as 140,000 net new jobs over the three year phase-in period of the increase.
Second, the $10.10 an hour level by 2016 -- which would, by the time it is fully implemented, have a real value of only $9.69 an hour in 2014 dollars -- is modest relative to many minimum wage benchmarks. A minimum wage of $10.40 an hour by 2016 would set the minimum wage at half the median wage, which is a standard that the minimum wage levels of most Organisation for Economic Co-operation and Development (OECD) nations (as well as the United States itself in the 1960's and 1970's) meet. Over a hundred economists have lent their support to a minimum wage that catches up to the 1968 inflation-adjusted federal minimum wage, which would be $11.39 an hour by 2016.
A "March on Washington Wage" -- one that reflects Martin Luther King Jr.'s demand of a $2 level in 1963, adjusted for inflation -- would be $16.18 an hour by 2016. To put the minimum wage in perspective relative to the living wage, note that the living wage for one adult with one child living in House Speaker John Boehner's Butler County, Ohio would be, according to the MIT Living Wage Calculator, $18.65 an hour by 2016.
Third, the media falsely reported that the tradeoffs associated with a minimum wage increase are roughly balanced between costs and benefits to different impoverished groups. In fact, the CBO report shows that, even with its outlier prediction of job loss, the change in real income of those making less than six times the poverty line is an increased $19 billion, lifting 900,000 people out of poverty and giving 16.5 million people raises.
Fourth, the partisan fight over the CBO report obscures the bipartisan nature of the minimum wage raise coalition. The most aggressive minimum wage effort in the country now is led by a conservative -- Republican Ron Unz, who is pushing for a $12 minimum wage in California in an effort to ensure that Golden State taxpayers are not, in providing public assistance to those who already work full time, essentially subsidizing the low wages of big corporations. Bill O'Reilly, Phyllis Schlafly as well as a majority of Republicans polled join 80% of Americans in supporting a minimum wage increase.
Finally, the CBO Report, given its charter, has to avoid dealing with themoral case for a minimum wage. Raising, or more precisely, restoring the inflation-adjusted minimum wage to its level from forty-five years ago lifts human beings from poverty in our rich nation -- a nation that has allowed its minimum wage level to fall way behind those of other western countries.
Corporate spin-masters thrive on the fog created by he-said-she-said economic policy debates. True, we must continue to deliberate to make sure all perspectives are heard, but we cannot let the debate obscure the glaring, shameful fact that 30 million Americans, despite being twice as productive as workers were 45 years ago, are making less today, adjusted for inflation than their mid-century counterparts. Congress must push forward through the fog and give workers a much-deserved restoration of a fair minimum wage level.
Read more about our efforts to raise the minimum wage at TimeForARaise.org.
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