President Obama’s plan to raise the minimum wage to $10.10 per hour would wipe out about 500,000 jobs by late 2016, according to the nonpartisan Congressional Budget Office…
…The CBO cautioned that its estimates of job losses were subject to wide fluctuation and could come in lower than 500,000 and as high as 1 million.
“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,” it said in a report Tuesday.
Let me summarize: we think it will cost jobs, but we have no idea how many.
The fact is that empirical studies on raising the minimum wage have found no consistent pattern of job losses. Sometimes you even get job gains. This is pure economic modeling: “well, if prices increase, buying must decrease, and labor is a market”. That’s economic theory in a nutshell, the problem is it doesn’t work that way in the real world all the time.
In real terms, the minimum wage was much higher 40 years ago. Did they have worse employment, or better employment than us?
Raising the minimum wage means that a lot of people have more money to spend, and spend it they do, because people earning that little spend every cent they have. So it increases demand. It decreases borrowing from payday loan places, which charge usurious interest, and that also increases spending, because payday loans very quickly cripple the buying power of those who take them.
Economic modeling is, well, hard, and it’s not a science, because economics is not a science. When the CBO says there’s a two-thirds chance a # is between negligible and a million people, they might as well be confessing to this.
Go ahead and raise the minimum wage. It might increase employment, it might decrease employment, but it will help most minimum wage workers. And because there are so many other things going on in the economy, any post-facto study on the affect will also be questionable.
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David Duff
Mr. Welsh, please sit down and pour yourself a large scotch because I agree with you! (That at least should keep the children quiet in the crèche.)
Economic forecasts are inherently uncertain because, of course, they deal with the future which is always and forever unknown in detail. Even so, I will still provide an economic forecast of my own which you may treat with the contempt it deserves and that is, that whilst effects on un/employment are very uncertain an increase in *costs* to business is a dead cert! For example, if your local coffee bar is forced to raise its wage costs then eventually that will be passed on to you, the customer, via higher prices. The delicious irony – and it’s nearly as good as that first cup of coffee in the morning – is that if you are on the minimum wage that increase, plus all the other increases in everything else you buy, will gradually take back the increase in your minimum wage.
That excellent American phrase “Never give a sucker an even break” comes to mind!
Celsius 233
CBO? These are bought persons. I agree with you; why oh why does anyone listen to these sycophants?
Unless the conversation starts with a minimum wage of $20/hr; what’s the point.
It’s rather difficult to take any of the present fog of dialogue with anything less than a grain of salt (and that may impart too much value).
IMO, the die is cast. We’re going to live or die by understanding what is, not what is hoped for.
In lieu of the coming climate catastrophe this may well be a moot discussion.
Tom Allen
You know, it’s really too bad the CBO wasn’t around in the 1860s to estimate the effect on the workforce of abolishing slavery; in the 1930s to warn of the dire consequences of child labor laws and the establishment of the original minimum wage; or in 1941 to calculate the economic consequences of Executive Order 8802 banning federal discrimination on the basis of race, creed, color or national origin. After all, issues of basic human dignity should always first go through rigorous bean-counting analysis. Think of the costs to business!
RJMeyers
David Duff:
Only in a stagnant economy that tends to a static equilibrium. To get this result, you have to exclude innovation and spatiotemporal differences in wages across economic sectors and geographies, plus ignore the spread of changes between areas and the knock-on effects in peripheral sectors as wage increases lead to more demand lead to further wage increases in an upward spiral–and you also have to assume that there is an institutional balance of power in which management/owners have all the price setting power and workers/consumers have none. If the economy is not capable of supporting this process with an associated set of facilitating institutions, then I think you are correct. The US isn’t so bad that it has lost this dynamic… yet. But we are getting close.
Hoarseface
Only because there’s a well established history of the CBO being misrepresented, (see Obamacare in the last few weeks) I’m just a little disappointed that you use the NY Post’s representation of the CBO report to discredit the CBO itself. While the characterization may be accurate and the quotes might not have been taken out of context (I have not read the report personally), I am broadly suspicious of economic reporting in general (many reporters on the topic apparently do not understand their subject) and suspicious of the NY Post specifically.
I broadly agree with your worldview but making strong arguments against conventional (or technocratic) wisdom without equally strong intellectual rigor will only serve to discredit the many things you get right along with the occasional things you (maybe) get wrong.
We’re all ptone to confirmation bias, its part of the human condition, and like the adage about “the price of democracry is eternal vigilence”, so too is the price of intellectual objectivism.
Not calling foul or trolling, just… be careful.
David Duff
@ RJMeyers:
You are right to point out the complexities inherent in any economy which is not the least of the reasons why our host is sceptical concerning economic forecasts – as am I. Also, you correctly remind us that these complexities are of such a ‘chaotic’ nature that simple, headline-catching actions carried out by politicians for what they claim to be ‘good’ reasons are almost certainly going to result in unforeseen outcomes. It was ever thus!