The always murky economics of a minimum wage hike became more muddled this week when the Congressional Budget Office on Tuesday projected that 500,000 people might lost their jobs if Congress raises the minimum wage to $10.10. On the plus side, the CBO found that the wage hike would lift about 900,000 out of poverty.
Whether or not the economics of the wage hike make sense, the politics are clearly on the side of raising the minimum. Polls have repeatedly verified that large majorities favor higher minimums, including one poll in December by Quinnipiac University that found a majority of Republicans in support.
Corporations are also feeling pressure. Wednesday, Bloomberg reported that Walmart is considering throwing its support behind a minimum wage hike — a potential major breach in the wall of opposition from low-wage employers. The tentative shift from Walmart came less than a week after California-based minimum wage activist Ron Unz had called the company out in a Forbes piece arguing that the chain would benefit form a higher minimum wage.
Walmart spokesman David Tovar told Bloomberg that the company thought that their customers might actually have more to spend at the store if wages went up: “That’s something we’re looking at,” he said, adding that they have not yet decided.
Unz applauded the Walmart move in an interview this week, and he also downplayed the CBO’s job loss projections. “For every job lost, there are probably around 40-50 who would get a major wage increase,” said the California Republican now leading the fight to raise the minimum wage in his home state. By late in the week, however, Walmart was backtracking.
Still, Unz is pleased with the momentary breach in the wall.
“Only people directly affected by it are the working poor,” Unz said. “Most of them would get huge wage increases. A few would lose their jobs, but the working poor support a minimum wage increase by 95 percent. Why should others block it if they are not the ones directly affected?”
The CBO has a built a reputation for straight-shooting nonpartisan analysis that often frustrates one side or the other. During the 2010 debate over Obamacare, CBO projections played a key role in persuading doubters that the president’s health care plan, if implemented strictly as written, would reduce deficits rather than add to them. A couple of weeks ago, another CBO report created a stir by projecting that Obamacare would push more than two million workers out of the workforce.
The finding that a steep hike in minimum wage would cause job losses did not surprise most economists, but it did put the White House on defense. Back in December, President Obama said, “Some say it actually hurts low-wage workers — businesses will be less likely to hire them. But there’s no solid evidence that a higher minimum wage costs jobs.”
This prompted fact checker Glenn Kessler at The Washington Post to award the president two “Pinocchios.” Kessler noted that economists still debate how significant job losses would be, but that few question they exist. Kessler noted that Paul Krugman at the New York Times recently wrote that “even most liberal economists would, I suspect, agree that setting a minimum wage of, say, $20 an hour would create a lot of problems."
The real question, Kessler says, is not whether jobs will be lost, but rather how high the “disemployment” effect will be if you set the wage at a given rate — and whether that job loss is worth the benefits of higher wages for the rest. Krugman argues that the job losses are easily swamped by the benefits.
But not everyone agrees. “The real goal,” argued Arpana Mathur, an economist at the American Enterprise Institute, “is to get people out of poverty. But the number of people in poverty are a small fraction of those earning the minimum wage.”
Most low-wage workers, she argues, are either teenagers, often from higher income homes, or family members working part time for extra income.
And Mathur may have a point. CBO projects that increased earnings to low-wage workers from the $10.10 minimum wage hike would total $31 billion, but just 19 percent of that would go to families below the poverty line. Households at more than three times the poverty rate would get 29 percent of the benefit, the CBO report states.
Mathur argues that if the goal is to alleviate poverty, the better solution is to bolster the Earned Income Tax Credit, which gives targeted cash assistance to low-income households directly without creating collateral benefits for those who are already better off.
But to Unz, further increasing government benefits simply allows businesses to shunt the real cost of their operations off onto taxpayers. Opponents of higher wage laws, Unz argues, claim to be concerned about job losses, “but their real concern is the bottom line of business lobbies that want to drive down the wages of Americans to lowest point possible.”
“A minimum wage increase is not a real, comprehensive solution to poverty and the problems of income inequality in this country," said Scott DeFife, head of policy and government affairs at the National Restaurant Association, which has so far resisted Wamart’s example to embrace higher wage laws.
"There is no clearer example of that than in the restaurant industry,” DeFife said, “where the vast majority of people who make the minimum wage are working part time, and are teens or young adults who are likely to be supplementing a family income."
DeFife and Mathur both argue that serious jobs and poverty policies should look at education and job training, rather than attempting to fix the value of labor.
“The restaurant industry provides real pathways to the middle class and beyond, and dramatic increases in the minimum wage will only hinder our ability to provide stepping stones for those who need it most,” DeFife said.