Raising the minimum wage ‘has little or no discernible effect on the employment prospects of low-wage workers’

Posted by AzBlueMeanie:

Here we go again . . .

The headline in the New York Times this morning: Minimum Wage Increase Would Have Mixed Effects, C.B.O. Report Says.

The headline in the Washington Post this morning: Minimum-wage hike could kill 500,000 jobs, CBO reports.

Note that the corporate media did not lead with the good news contained in the CBO report about an increase in the minimum wage. What Really Happens When You Raise The Minimum Wage:

The Congressional Budget Office (CBO) released a new report on Tuesday on the impacts of raising the minimum wage to $10.10 an hour and $9 an hour. It found that a $10.10 minimum wage, implemented by 2016, would mean higher earnings for 16.5 million workers, resulting in $31 billion more in higher earnings. It would also lift nearly 1 million people out of poverty.

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“Once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2 billion,” it says. The vast majority of people impacted, over 95 percent, will be impacted positively.

Tea-Publicans were ecstatic that the CBO report also said "the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent.” Always with the negative waves, Moriarty.

Tea-Publicans want Americans to continue to earn sub-poverty level wages at the hands of exploitative  employers, because "Freedom!" (Some Tea-Publicans around the country have even proposed eliminating the minimum wage altogether). I would remind you that failed GOP economic policies have eliminated millions of jobs since 2000.

Two points about this CBO report. First, remember when Republicans were in favor of "creative destruction" in capitalism, competition which eliminates marginal and unproductive businesses in favor of more efficient and productive businesses?

Apparently now the most marginal and least productive businesses are entitled to protection through exploiting their workers by paying sub-poverty level wages. In addition, these businesses are also subsidized by taxpayers through government assistance programs to their employees living in poverty, e.g., food stamps and Medicaid. This is privatizing profit and socializing loss.

Second, the CBO report appears to me to undervalue the expansionary stimulus effect of injecting more purchasing power into the economy, which decades of historical data demonstrates leads to job creation over the long term.

I posted earlier this year about a report from the Center for Economic and Policy Research, a meta-data rich report on the minimum wage entitled, "Why Does the Minimum Wage Have No Discernible Effect on Employment?" PDF. From the press release:

A new paper from the Center for Economic and Policy Research finds that modest increases in the minimum wage – such as the one proposed by President Obama in his State of the Union address – have little impact on employment, due to adjustments by employers and workers. The paper, “Why Does the Minimum Wage Have No Discernible Effect on Employment?” by economist John Schmitt reviews evidence on eleven possible adjustments to minimum-wage increases that may help to explain why the measured employment effects are so consistently small. It finds that the strongest evidence suggests the most important adjustments are: reductions in labor turnover; improvements in organizational efficiency; reductions in wages of higher earners ("wage compression"); and small price increases.

This is one of the most studied topics in economics, and the evidence is clear: modest minimum wage increases don’t have much impact on employment,” Schmitt said. “An increase to $9.00 per hour would be hugely important for the workers getting it, but the idea that this would lead to less employment is just not supported by the evidence.”

President Obama’s call for a minimum wage rise to $9.00 an hour would be a modest increase, and would keep the minimum wage below its peak, when adjusting for inflation. As CEPR’s Dean Baker and Will Kimball noted in a blog post yesterday, “The purchasing power of the minimum wage peaked in the late 1960s [1968] at $9.22 an hour in 2012 dollars. That is almost two dollars above the current level of $7.25 an hour.” They also noted that the minimum wage has not kept pace with productivity increases over the past 44 years, as it had from 1947-1969 – a period when economic “[g]rowth averaged 4.0 percent annually” and “the unemployment rate for the year 1969 averaged less than 4.0 percent.” But the link between productivity growth and minimum wage ended in the 1970s.

Baker and Kimball note that “If the minimum wage had kept pace with productivity growth it would be $16.54 in 2012 dollars.”

Schmitt’s paper notes that “two recent meta-studies analyzing [scores of separate studies] conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.” The paper concludes that the most likely reason for this is that “the cost shock of the minimum wage is small relative to most firms' overall costs and modest relative to the wages paid to low-wage workers.”

Min-wage-2013-02-fig-1

The paper notes that employers have many channels of adjustment to a minimum wage increase, including reducing hours, non-wage benefits, or training; shifting the composition toward higher skilled workers; cutting pay to more highly paid workers; taking action to increase worker productivity (from reorganizing production to increasing training); increasing prices for consumers; or firms simply living with a smaller profit margin.

The paper notes that “Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.”

Now, there are marginal employers who may go out of business if they have to pay higher wages. But this is part of the process of creative destruction and eliminating market inefficiencies in a capitalist society — something conservatives and Republicans claim to support.

Other studies have reached the same conclusion, What Really Happens When You Raise The Minimum Wage:

There is also real world evidence that minimum wage increases don’t hurt jobs. David Madland and Keith Miller analyzed minimum wage increases at the state level over two decades andfound no clear evidence that the minimum-wage increases affect aggregate job creation when unemployment rates are high.” After looking at the increases during times 7 percent unemployment or more, the rate actually declined 52 percent of the time and in a few cases remained unchanged. The authors also point to five other studies that did the same state-level analysis while controlling for other factors that could impact employment and similarly found “no discernable effect on employment levels.”

So once again, the corporate media is aiding and abetting the conservative media entertainment complex GOPropaganda talking points.

Senate Democrats are preparing to vote on the Harkin-Miller bill, also known as the Fair Minimum Wage Act, which would raise the federal minimum wage to $10.10 an hour, from its current $7.25. 

The bill is scheduled to be argued in the Senate in March. House Democrats are talking about pursuing a discharge petition in the Tea-Publican controlled House. Several states will have a minimum wage measure on the ballot this November — these measures have always passed, normally with overwhelming voter approval.

2 responses to “Raising the minimum wage ‘has little or no discernible effect on the employment prospects of low-wage workers’

  1. AZ BlueMeanie

    Your answer is to do away with the minimum wage so they can be exploited as indentured servants or serfs in the corporatocracy, rather than address the massive redistribution of wealth to the corporatocracy and the destructive effects that accumulation of wealth has had on our economy and society.

  2. Read your own post. The minimum wage has massive effects causing employers to shift to higher skilled workers and away from poor minority workers. We are now seeing the brutal effects of minimum wage as employment of teenagers has plunged from 45 percent to 22 percent. 85 percent of workers move out of minimum wage in three years which is why starter jobs are so critical to the poor.

    Any policy such as minimum wage that hurts labor force entry of the poor is bad policy.