Proposed Minimum Wage Increase Triggers Job Loss Scare Stories

February 27, 2013

My last post pulled together some figures on whom the President’s proposed minimum wage increase would help. It seems fair to ask whether it would cause harms.

The answer is a resounding “yes” from Congressional Republicans and the best-known organizations that claim to represent small business interests.

First off, we’re told that a minimum wage increase will cause job losses.

“When you raise the price of employment, guess what happens. You get less of it,” said House Majority Leader John Boehner, assuring the press that the President’s proposal would be dead on arrival.

He then reverted to another well-worn argument against minimum wage increases. They make it harder for workers with few or no marketable skills to get hired. So these workers can’t “acquire the skills they need to climb that ladder” to the American Dream.

“Workers must bring at least as much value to the firm as they are paid, ” says the National Federation of Independent Businesses. So businesses won’t hire people who need on-the-job-training before they can do what they were hired for.

Both the job loss and the no-skill worker argument appeal to common sense. But we need more than that here.

Fortunately, we’ve got scads of economic research on the jobs loss issue — much of it focused on teenagers and/or low-wage fast food jobs.

A recent, very wonkish review concludes that the effect of a minimum wage increase on jobs is somewhere around zero, as this extracted graph shows. Not the end of the economists’ back-and-forth on this, of course.

Some suggest that a minimum wage increase could actually create jobs because affected workers and their families would spend most, if not all their extra income. Basically the same effect as stimulus spending, but without (horrors!) an increase in the deficit.

Analyzing the impacts of an earlier, more generous proposal, the Economic Policy Institute found that it would create about 100,000 new jobs during the phase-in period.

On the other hand, we’ve got assurances that jobs won’t be lost in part because employers will “improve efficiency.” They may, for example, raise performance standards, e.g., require faster and better task completion and/or impose more tasks.

I’ve got a hard time seeing how, in the long run, this response wouldn’t, at the very least, put a drag on new job creation — perhaps even lead employers to conclude that they needn’t replace all the workers who move on or get fired because they can’t meet the new demands.

Or maybe a minimum wage increase wouldn’t make much difference here, since we know that employers are already doing their best to manage with as few workers as possible.

In any event, businesses have other options. Some may decide to pass part of their additional labor costs on to consumers.

This has also been cited as a harm to minimum wage workers, who, of course, would have the hardest time coping with price increases.

The Center for American Progress debunks this version of the harm-those-intended-to-help argument. A price increase of at most 0.18% would pay for the entire hike in labor costs, according to its number-crunching.

Businesses could instead absorb the cost by accepting a slightly lower profit margin, CAP says.

Or — less radical idea — they might find, as some already have, that the higher wage pays for itself because it reduces turnover and motivates employees to work as hard and smart as they can.

The bottom line is that employers en masse aren’t going to shrink their workforces if a minimum wage increase passes. Small businesses aren’t going to tank. Low-income people will still be able to afford Big Macs.

But how much low-income workers would benefit in the long run depends on responses we can’t predict.

What we can predict is that about 18 million would benefit right now — 3 million or so more if the federal tip credit wage got a reasonable boost as well.

Proposed Minimum Wage Increase Would Help Millions of Workers, But Not Enough

February 25, 2013

“Tonight, let’s declare that in the wealthiest nation on earth, no one who works full time should have to live in poverty,” the President proclaimed in his State of the Union address.

This broad, seemingly unobjectionable proposition prefaced a modest proposal — a phased-in minimum wage increase that would top out at $9.00 in 2015 and then rise to keep pace with cost-of-living increases.

This set off yet another round in the perennial minimum wage debate — one that will rage for quite awhile, I suppose.

So here are three of the big issues. Others to come in followup posts.

How Many Workers Would Be Helped?

A former conservative head of the Bureau of Labor Statistics says really not very many. Only 1.7 million workers were paid at the federal minimum wage last year — about 2.3% of all workers paid at hourly rates.

But this figure understates the impact because the new federal minimum would probably supersede most of the 18 state minimum wage rates that are now higher than the federal.

The District of Columbia’s minimum wage rate would also rise because it’s always, by law, $1.00 higher than the federal. About 1,000 workers would get a boost — perhaps considerably more if the tip credit wage were also increased.

The White House says that the proposed increase would “directly boost wages” for 15 million workers nationwide. The Economic Policy Institute puts the figure at more than 13 million, implying a somewhat lower estimate.

EPI also estimates that 4.7 million additional workers would get a boost because employers would, as in the past, adjust their wage scales to maintain a differential between their lowest-paid workers and those with jobs that require somewhat higher skills.

Who Are These Workers?

We tend to associate minimum wage jobs with the restaurant industry. And, indeed, there are far more minimum wage workers in food preparation and related services than any other occupation BLS defines.

But other service sector occupations also have large numbers of minimum wage workers — buildings and grounds maintenance, for example, retail sales and personal care, e.g., child care workers, home care aides, some beauty shop employees.

What’s striking to me is the breadth of occupations that had minimum wage workers in 2010 — the latest year BLS reports on. In addition to all the aforementioned, those that had at least 100,000 include office and administrative support staff and people employed in transportation and moving occupations.

We’ve been given to understand that most minimum wage workers are teenagers — the unspoken message being that they’re mostly just earning some running around money.

According to the White House, however, fewer than 20% are in their teens. The figure drops to 16% if we count the somewhat higher-paid workers who’ll benefit, according to EPI.

And we know more than enough to know that lots of them need the money — even may be trying to support families, though the former BLS chief says otherwise.

Is the Proposed Increase Big Enough?

The consensus among supporters seems to be no — and with good reason.

A $9.00 an hour minimum wage wouldn’t even make up for the value the wage has lost since its peak purchasing power back in 1968. For that we’d need an immediate increase to $10.56.

To give minimum wage workers the same share of productivity they had in the decades leading up to 1968, we’d have to raise the minimum wage to $16.54, according to a “conservative” estimate by economists at the Center for Economic and Policy Research.

Using the President’s own standard, the “family with two kids” he referred to — apparently one with a stay-at-home parent — would have a pretax income of $18,720, if the worker took not even one unpaid hour off for illness, family emergency or whatever.

This would leave the family $4,830 below the current federal poverty line.

Using a slightly lower annual income,* CEPR estimates that the family would be about $6,600 below the projected FPL by the time the last phase of the minimum wage increase kicked in.

On the other hand, the four-person family might well have more than one breadwinner. According to the White House, minimum wage workers contribute, on average, 46% of their households’ wage and/or salary income.

So the increase certainly could lift families out of poverty. Out of near-poverty too, which seems a more suitable criterion, given the unrealistically low poverty thresholds reflected in the FPL.

Still, I was somewhat puzzled by the figure the President settled on.

A bill introduced in Congress last year would have raised the minimum wage to $9.80 by 2014. The President himself campaigned for his first term on a promise to increase it to $9.50 by 2011.

Did he perhaps revert to negotiating with himself? Perhaps it doesn’t matter.

The cosponsors of last year’s bill have said they’ll introduce another, with a minimum wage hike to $10.10 by 2015, followed by the same cost-of-living increases the President has proposed.

This seems a better place to start if Congress is going to fix and forget the contentious minimum wage by letting it automatically rise just enough to prevent lost purchasing power after it reaches the initially-set rate.

* CEPR apparently assumes a smaller number of working hours for the year. I use the standard 2,080.

Next Act in the Congressional Fiscal Follies

February 6, 2013

When Congressional Republicans agreed to temporarily suspend the debt ceiling, they and their Democratic colleagues left chunks of the so-called fiscal cliff in place. Or rather, they left one in place and pushed the other ahead to March 1.

The deferred chunk is sequestration, i.e., the across-the-board cuts that were supposed to give the bipartisan Super Committee a compelling incentive to agree on a more sensible deficit reduction plan.

Supposed to, but as we all know, didn’t.

As I’ve said before, no one likes the across-the-board cuts — a genuine bipartisan sentiment here. But we also seem to have a bipartisan agreement that they’re more likely to happen than not.

When the Washington Post alerted us to this next act in the fiscal follies, it focused on the impacts on the national economy. So have most other news articles and commentaries.

Not so bad, the Post gave us to understand.

A nick in economic growth — earlier estimated by the Economic Policy Institute at 0.6%. But “the financial markets” — those barometers of investors’ hope and fears — aren’t sending up distress signals.

Defense contractors certainly are. Likewise governors and mayors — as well they might, since federal grants account for, on average, about a third of state revenues. Sequestration would cut many, though not all those grants.

States can expect further revenue losses — and more safety net spending pressures — because of the job losses the across-the-board cuts will cause, both directly and indirectly.

We don’t know how many jobs will be lost. The Bipartisan Policy Center has estimated a million over the next two years.

Another widely-cited study put the total at close to 2.1 million this fiscal year, based on the assumption the cuts would begin when originally scheduled, as was the Center’s estimate.

Well, the economy can’t afford even a nick, as the latest economic growth report reminds us. Or should I say, economic non-growth report?

Nor can we afford more job losses, when we’re still shy about 3.2 million of the jobs lost since the recession set in — and actually need to create an even larger number because we’ve got more working-age people now.

Republicans and Democrats agree that we need to create more jobs, though differ dramatically in their views on how to do that.

At this point, however, job losses are in the forecast because there’s a huge bipartisan gulf that would have to be bridged to stop them.

Leading Democrats say that any alternative to sequestration must balance spending cuts and revenue raisers — one of the President’s fundamental principles for deficit reduction.

Republicans say they’re done with tax increases, based on the relatively piddling $620 billion they agreed to as part of the partial January fiscal cliff deal.

And they clearly want to halt the across-the-board cuts for defense, while preserving the overall savings from sequestration — $85.3 billion for the current fiscal year.

That would mean shifting all the cuts to the non-defense side of the ledger, though not necessarily to the vast number of programs and activities now targeted for cuts.

The sequestration replacement bill the House passed in December folded in the $16.5 billion cut in the food stamp program that was part of the House Agriculture Committee’s Farm bill — and made it bigger.

It also adopted some earlier “savings” that came out of the House Ways and Means Committee — all detrimental to low and moderate-income people.

Other provisions undermine the Dodd-Frank financial services reform legislation and the Affordable Care Act — a stab in addition to what was already in the Ways and Means plan.

House Republicans know full well that the Democratic majority in the Senate won’t swallow all these “poison pills” — a term commonly used for provisions designed to kill a piece of legislation.

They also now seem to know that Democrats won’t agree to a cuts-only bill to replace sequestration.

So they’re inclined to take the sequestration savings and move on to the next episode in the fiscal cliff follies — the expiration of the continuing resolution that’s funding the federal government.

That will happen on March 27, unless both parties in Congress come to some kind of agreement. And they probably will.

But in the meantime, we’ll have what Matt Yglesias at Slate has aptly called “the idiocy of sequestration.”

Anyone who doubts this need only read what the President said yesterday in his call for a further sequestration delay and House Majority Leader John Boehner’s preemptive response.

NOTE: I’m indebted to Joan Entmacher, the Vice President of Family and Economic Security at the National Women’s Law Center, for the term “fiscal follies.” She used it in a very informative webinar co-sponsored by the Center and the Coalition on Human Needs.

You can view the webinar by clicking the link at the bottom of this page.

Dark Deficit Clouds Over DC

July 29, 2011

I’m following — some would say obsessively — the byzantine maneuvers on Capitol Hill. Wasn’t going to write about them, but can’t stay focused on anything else.

Bills passed in the House that can’t pass in the Senate. Bills offered in the House that can’t pass there because some Republican members think they’re not extreme enough.

I’m gripped by suspense. Will Congress raise the debt ceiling before the drop-dead date? What will happen if it doesn’t? What will happen if it does, but only for a short period of time? Will the President follow through on his almost-but-not-quite veto threat?

And I’m profoundly disheartened because whatever deal gets passed — and I’m pretty certain one will be — will do grave damage to low and moderate-income Americans.

Many economists — not all of them liberals — say that spending cuts should wait until the economy is growing at a healthier pace. Say that won’t happen until the unemployment rate drops to something closer to normal because, needless to say, jobless people and their families don’t buy more than they absolutely have to.

Yet all the deficit reduction plans afloat would cut spending next year below the already-cut levels in the continuing resolution that’s the substitute for a regular budget now.

And none of them would shield safety net programs that get their funding from annual appropriations.

These programs, recall, don’t just protect poor people from destitution. They also create and preserve jobs — both directly in the agencies that administer them and indirectly because they give beneficiaries some spending power.

Nobody knows what all this will mean for the District of Columbia because nobody knows how either the crisis or the solution will play out. But we can make some educated guesses.

The Chief Financial Officer has warned of short-term financing troubles if the debt ceiling isn’t raised. Also of longer-term constraints from what I guess he foresees as losses of federal funds due to cuts in Medicaid and other federal programs, e.g., aid to public education.

He expresses worries about a bond downgrade due to lack of ready cash and impacts on revenues the District gains because the federal government is headquartered here.

There could, however, be other impacts. If interest on Treasury bonds rises because they’re no longer viewed as 100% safe, interest on other new bond issuances will rise. Interest on loans in the private sector too.

Include here not only financing for development projects, but home mortgages, car loans, higher education loans and plastic debt. Hardly a stimulus to local consumer spending.

And what about recovery in our anemic job market? The National Employment Law Project gives us a partial answer.

A fact sheet it’s not yet posted provides state-by-state (and District) figures for jobs lost or gained since the recession began, plus new jobs that would have to be created to accommodate growth in the working-age population.

The District, it shows, would have to gain 30,100 jobs just to get back to where we were in December 2007.

How can we possibly get anywhere near this number when federal spending cuts will mean widespread job losses?

We’ve got residents working in federal agencies, in local companies that provide them with contract services, in District agencies that depend in part on federal funds, in the organizations they contract with and in a large number of for-profit businesses that grow, shrink or die on the basis of consumer spending.

All vulnerable to layoffs as the federal budget cuts unroll. More certain hardships for our most vulnerable neighbors too.

I don’t recall when I’ve ever felt so anxious about our community — and our country. And I’ve been watching federal policymaking for a long time.


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