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Will a Minimum Wage Hike Really Cost Jobs? | The Nation

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George Zornick

George Zornick

Action and dysfunction in the Beltway swamp. E-mail tips to george@thenation.com

Will a Minimum Wage Hike Really Cost Jobs?

Minimum wage protester

Darlene Handy of Baltimore holds up a sign during a rally to support raising the minimum wage in Maryland. (AP Photo/Jose Luis Magana)  

The Congressional Budget Office lobbed a small grenade into the debate over an increased minimum wage on Tuesday, releasing a report that found an increase to $10.10 an hour by 2016 would increase the wages of 25 million Americans, but also cost the economy around 500,000 jobs.

Here are the CBO’s key findings:

  • Seventeen million Americans would be directly affected by raising the minimum wage gradually to $10.10 by 2016, and 8 million workers who earn above $10.10 would also see indirect wage increases as a result, totalling 25 million Americans who would earn more.

  • A $10.10 wage hike would reduce employment by 0.3 percent, or 500,000 jobs. The CBO warns that “as with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of one million workers.”

  • Americans who make less than six times the poverty line (that is, $70,020 annual earnings for an individual) would see $19 billion in increased aggregate wages as a result of a minimum wage hike, with 90 percent of that going to people who make less than three times the poverty line ($35,010 in annual earnings for an individual). These are net numbers, meaning they account for the aforementioned job losses.

  • People making less than the poverty line ($11,060 for an individual) would see $5 billion in increased aggregate wages, which again is a net number. The CBO also says 900,000 Americans would be lifted above the poverty line.

  • A minimum wage hike would have no clear impact on the country’s budget deficits even in the long term.

Republicans naturally pounced on the job loss numbers. “This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working,” said Brendan Buck, a spokesman for House Speaker John Boehner. “With unemployment Americans’ top concern, our focus should be creating—not destroying—jobs for those who need them most.”

The progressive response has been twofold: one, that the CBO’s findings on job loss are out of step with a majority of the economic research, and two, that the big picture tradeoff still makes a minimum wage hike a good deal.

Several economists Tuesday, including Jason Furman and Betsy Stevenson at the White House, stressed that the CBO report doesn’t match the “consensus view” of economists.

It’s not that the CBO cooked the books or had serious methodological problems, they say. But what the CBO did was a meta-analysis of economic data: in other words, instead of running its own empirical study on the employment effect of minimum wage increases, the CBO simply looked at a bunch of existing studies and did an analysis of that body of work.

Past meta-analyses have found that, of the many studies that have been done, the conclusions cluster around zero for job loss estimates:

The CBO of course found a slightly higher number. Nobel Prize–winning economist Joseph Stiglitz told reporters on a Tuesday afternoon conference call held by the Economic Policy Institute that he would quibble with the heft CBO gave to some studies versus others. “When you do a meta-analysis, the question is how do you weight different studies. Some of the studies come closer to being controlled experiments, and therefore have more credibility with most economists,” he said. “The CBO analysis I think underestimated the benefits and overestimated the costs in several respects.”

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Lawrence Katz, an economist at Harvard University, told reporters that he thinks perhaps the CBO used a slightly higher number for elasticity of labor market demand than was necessary. “At every stage they’re being a little higher than I would do, but I think they’re trying to be reasonable at reading the evidence, and as they stress, there’s a lot of uncertainty,” he said.

But in the bigger picture, many economists said the trade-off would still be worth it even if one accepted the job loss numbers.

“I’ve worked for longer than I care to remember on policies and programs to reduce poverty and to improve living conditions at the bottom,” said Robert Greenstein of the Center on Budget and Policy Priorities. “When you have a policy that adds $5 billion in income to people under the poverty line, and lifts nearly one million of them above the poverty line…and you get all of these net gains for no federal budgetary cost, that’s a pretty good endorsement of this as a positive policy to go forward.”

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