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4 Reactions to the CBO's Minimum Wage Report


Some experts say the report overlooked evidence regarding the financial gains to employers, and improved productivity.

The hotly debated argument for hiking the federal minimum wage in the US got some good news and some bad news on Tuesday. A report from the Congressional Budget Office (CBO) examining the impact of a wage increase on employment and family income is a mixed bag of results, with a little more ammo for both sides fighting the issue.

On the one hand, boosting the minimum wage from its current rate of $7.25 per hour to $10.10 would give 16.5 million workers a raise and lift 900,000 Americans from the federal poverty threshold. But the CBO says the pay bump could come at the cost of 500,000 jobs, impacting 0.3% of the workforce by 2016.

And a muddy issue just got muddier.

To help make sense of the news and understand its impact before the minimum wage debate gets heaped onto to the political platform during midterm elections, Minyanville looked at the opinions of four economic experts.

Jason Furman, the chairman of the White House Council of Economic Advisers

The White House's top economist claims the CBO report does not reflect the consensus among some 600 economists (including seven Nobel Prize winners and eight former presidents of the American Economic Association) who are in "respectful disagreement" with the estimates on job loss. The weight of the evidence of a $2.85 boost in the federal hourly wage, Furman says, proves "little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market."

According to Furman, the CBO report overlooked the meta-analyses conducted on the benefits to employers, like improved worker productivity and reduced unit labor costs. "Higher wages lead to lower turnover, reducing the amount employers must spend recruiting and training new employees," he said. "Paying workers more can also improve motivation, morale, focus, and health, all of which can make workers more productive."

James Sherk, the Heritage Foundation

"Surprise, surprise," feigned the senior policy analyst in labor economics in response to the unemployment estimate. The CBO report confirms what James Sherk has been saying all along about a $10.10 minimum wage: "[It] has no historical precedent and would jettison hundreds of thousands of jobs."

In fact, the Heritage Foundation's analysis of research on the issue actually undershot the CBO's figures by 200,000; the conservative think tank had set the cost of a federal wage hike at a mere 300,000 American jobs. According to the foundation, better pay for workers will reduce demand and discourage hiring to a far greater extent than even its experts predicted.

Robert Reich, University of California at Berkeley, former US Secretary of Labor, author

All of this CBO report hubbub has public policy expert Robert Reich waxing a bit philosophical: "[A]s inequality has widened and class divisions have hardened," he says "America's wealthy no longer have any idea how the other half lives."

For Reich, the heart of the minimum-wage debate has always been the issue of fairness for America's working poor. But beyond finally catching wages up to inflation -- which would bring the hourly rate to $10.56 -- he argues a federal hike would not encourage employers to shed jobs.

Since minimum wage workers are in the local, personal service sector, their jobs aren't going to be outsourced abroad or replaced with machines. When retail or fast food employees make more money, business owners "pass on any small wage hikes to customers as pennies more on their bills."

As confirmation of his theory, Reich points to states with minimum wages closer to $9 per hour. He claims they don't have higher rates of unemployment.

Ramesh Ponnuru, Bloomberg News, National Review, American Enterprise Institute

Some critics of the minimum wage hike may think it's a bad idea. Others, like editor and columnist Ramesh Ponnuru, say it's "a worse idea than ever."

As confirmation of his theory, Ponnuru points to a 2010 study showing that states with higher minimum wages didn't have lower poverty rates. An increase of $9.50 per hour would only benefit 11% of poor households; 42% of those wage earners already live in households well above the US median income, he argues.

Ponnuru doesn't believe customers will pay what Reich described as "pennies more" for the same goods and services. "The logic is straightforward enough," he says. "Raise the price of something, and people will buy less of it -- even when that 'something' is labor, and the people in question are employers."
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