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.

House Spending Cuts Would Mean Massive Job Losses

March 2, 2011

I suppose this is self-evident, but I think it’s worth saying. Spending cuts as deep and wide as the House Republicans want would throw many thousands of people out of work.

Based on the total non-security cuts that went to the House floor, the Economic Policy Institute estimated somewhat over 800,000. Mark Zandi, Chief Economist at Moody’s Analytics, projects job losses at 700,000 by the end of 2012 — this apparently based on the bill the House passed.

Add to the jobless an uncounted number of workers who would be subject to reduced work hours or furloughs.

In the latter camp would be employees in the Social Security Administration. So much for getting timely action on benefits claims — let alone hearings on the large percentage of disability claims the agency initially rejects.

But it’s not only federal employees that would be affected. Think of all the state and local public service workers who’d find themselves on the unemployment rolls — Head Start and K-12 teachers, staff in one-stop centers for job seekers, etc.

A fact sheet from the Senate Democratic Policy and Communications Center says that the Head Start and Title I (Education for the Disadvantaged) cuts alone could cause an estimated 65,000 layoffs. Not a disinterested source, but not necessarily out of the ballpark either.

And then there are all the private-sector workers indirectly paid by federal grants to the states, e.g., the professionals and other staff in the community health centers that would close or shrink. The centers’ national association estimates job losses totaling 7,434.

Add to these the jobs that would be lost in the maternal and child health centers the Republicans would totally defund. And the 80,000 public service jobs funded by AmeriCorps — also targeted for extinction.

And what about the construction workers who won’t be rehabbing public housing or building new affordable housing because of cuts in the Department of Housing and Urban Development’s budget?

And the workers that we devoutly hope will be maintaining the Washington metro area’s rapid transit system, but probably won’t be if the proposed $150 million WMATA cut is approved?

I could go on generating examples, but I think you’ve got the picture.

Confronted with the loss the federal jobs, House Majority Leader John Boehner replied, “So be it. We’re broke.” Which is stuff and nonsense. But then so is the notion that the proposed spending cuts will reduce the deficit that’s got our policymakers — Republicans and Democrats alike — so agitated.

When people don’t work, they don’t owe as much — or anything — in income taxes. They also don’t buy as much. Business profits go down and, with them, corporate tax payments.

So federal revenues decline, as they did when the recession set in. Meanwhile, mandatory safety net spending, e.g., for food stamps and Medicaid goes up, because more jobless people means more people poor enough to qualify.

So how is the deficit shrinking?

I think just about everyone agrees that federal spending is on an unsustainable upward curve. But the programs the House Republicans would slash have virtually nothing to do with that. The pie chart and analysis on Dustin’s Our Dime blog show why.

Maybe the House Republican leadership has put itself in a box. It pledged to immediately cut at least $1 billion in federal spending while holding the military and programs for veterans and seniors harmless.

This helped get a bunch of Tea Partiers elected. And now they’re insisting that the House make good on the pledge, though the very conservative chairmen of the Budget and Appropriations Committees apparently didn’t want to go there — at least not during the shrinking remainder of this fiscal year.

Whatever the case, I think EPI is right when it warns that the House proposal would magnify the ongoing labor market crisis.

Also right when it says the proposal “suggests that Americans take on unnecessary pain with no long-term gain.” I’d just add that some Americans are going to have lots more pain foisted off on them than others.

Small Victory For Jobless Workers

July 26, 2010

As you all know by now, Carte Goodwin, temporary replacement for the late Senator Byrd, arrived last Tuesday past the nick of time to break the Republican’s filibuster of the latest extension of unemployment insurance benefits. The House swiftly passed the bill. The President signed it. And the Senate moved on to other stalemates.

The UI extension bill provides immediate relief for about 2.5 million jobless workers whose extended benefits were cut off when the authorizing legislation expired. Extended benefits will also be available to other workers who exhaust their regular state benefits before the end of November.

They’ll get somewhere between 34 and 73 weeks of additional benefits, depending on how high their state’s unemployment rate is. Here in the District, with a current unemployment rate of 10%, eligible jobless workers will be able to get a total of 99 weeks of benefits.

I wish I could just rejoice in the hard-won victory. But I can’t help pondering the relatively small impact the bill will have on what promise to be long-term hardships for a vast number of jobless workers and their families.

Several major issues here.

First off, all jobless workers will get $25 a week less than they would have under all but the latest versions of was once a modest, but broader effort to deal with the jobs situation.

This will bring the average weekly benefit down to $284 — less than what’s needed to lift a family of three above the federal poverty line. So jobless workers may have benefits, but we’re still likely to have more families facing utility cutoffs, evictions, etc.

Second, we’re told that only about two-thirds of the 14.6 million people who are officially unemployed are getting unemployment benefits. “Officially” here means that they’ve got no job whatever and are actively looking for one.

At least some portion of the remaining third didn’t earn enough and/or work enough recently enough to qualify. The 1.2 million people who’d looked but given up aren’t getting unemployment benefits either.

Third, the extension will do nothing for workers who’d already exhausted their maximum benefits — the so-called 99ers. Blogger Jackie Headapohl says that economists estimate their number at around 1 million. Also says it’s expected to double or even triple in the months to come.

Received wisdom seems to be that the longer you’ve been out of work, the longer you’ll be out of work. Various reasons floated for this. One, which is bad news even for a lot of recently laid-off people, is that employers have eliminated certain types of positions, e.g., secretaries, travel agents, auto workers.

These jobs have been automated, outsourced or foisted off on other employees. Even a full economic recovery won’t bring them back.

This may be a particular problem for older workers who don’t have the time and resources to retool. Even if they do, they’re likely to face out-and-out age discrimination. Also some biases that amount to the same thing.

Employers may be ready to hire young workers with little or no relevant job experience. But as a commenter on the Poverty in America blog said, “a 57 year old with no experience in a new field isn’t exactly in demand.”

What are these workers to do until they’re old enough to qualify for Social Security benefits that will barely cover their living expenses, if that? By then, many will probably have tapped their shrunken retirement savings.

We can expect the Democrats to mount yet another effort to extend the extra tiers of unemployment benefits some time before the end of November. But, as Washington Post blogger Ezra Klein says, the latest vote in the Senate shows that any further extension will have to be offset — and may not pass even if it is.

Back in May, Senator Charles Schumer (D-NY) pledged to “work with [his] colleagues to create a fifth tier of benefits,” i.e., some unspecified number of weeks beyond the current 99-week maximum. Colleague and influential Finance Committee Chairman Max Baucus (D-MT) has already turned thumbs down on this.

Over on the House side, Speaker Nancy Pelosi (D-CA) has thus for remained technically neutral. At the end of November, she says, “we’ll take up something,” but it will have to satisfy members “from low unemployment areas [who] are very concerned about the deficit.” Odds are Senate Majority Leader Harry Reid (D-NV) will adopt the same calculus and that both will limit their efforts to the existing tiers.

But even repeated extensions of unemployment benefits, with still another tier for at least some long-time jobless people wouldn’t resolve the underlying problem.

The labor market has shed 7.5 million jobs since the recession began. Heidi Shierholz at the Economic Policy Institute says it would need to add about 325,000 jobs every month for the next four years to bring the unemployment rate back down to its pre-recession level. Haven’t seen anyone projecting anything remotely approaching this.

Will Congress rise to the challenges of what promises to be a prolonged jobs crisis, with even longer-term damage to human lives? If past is prologue, the answer is a resounding NO, even if the Democrats do better in November than the prognosticators expect.

What’s worse, it’s hard to know what Congress could do to put such a large number of unemployed people back to work, while at the same time ensuring that new entrants to the job market find work too.

Which is not to say it should wash its hands of the problem. Every job it could save or create would mean at least one less person on the brink of desperation — or over the edge.

Worse State, DC Budget Woes To Come If Extra Medicaid Funding Dies

June 14, 2010

Recent weeks have brought us several important updates on state-level budget woes and their impacts on our still-struggling economy and anemic job market.

First came the Commerce Department’s quarterly report on the gross domestic product–a common measure of the country’s economic health. Cuts in state and local government spending reduced the GDP increase rate by half a percent. This translates into a loss of about $72 billion in economic growth.

Then the National Governors Association and the National Association of State Budget Officers issued the results of their latest fiscal survey of the states. Bottom line here is that Fiscal Year 2010 “presented the most difficult challenge for states’ financial management since the Great Depression.” More of the same is expected in FY 2011.

States spent an estimated $74.4 billion less in FY 2010 than in FY 2008. But they would have had to make even larger cuts if they hadn’t received emergency fiscal assistance through the economic recovery act. The single largest part of this was a higher-than-usual federal match on states’ Medicaid costs (FMAP).

Then we got the Bureau of Labor Statistics’ employment figures for May. While nonfarm payrolls showed on increase of 431,000 employees, but all but 20,000 of them were temporary workers hired by the Census Bureau.

State and local government payrolls shrank by 22,000 jobs. The Center on Budget and Policy Priorities reports that this brings the total to 231,000 jobs shed since August 2008, including 100,000 in education.

The American Association of School Administrators estimates that an additional 275,000 education jobs will be lost in the upcoming school year–unless the federal government steps in with more emergency aid.

And here’s the kicker. According to a lengthier CBPP analysis, 29 states and the District of Columbia developed their FY 2011 budgets on the assumption that FMAP would be extended. Without the assumption, projected shortfalls–and, therefore, cuts–would have been even greater.

It was a reasonable assumption. After all, both the House and Senate had passed bills including a FMAP extension. But, as I recently ranted, the House leadership dropped the extension to garner the votes needed to pass its version of the Senate’s jobs/tax cut extender bill.

Now the Senate leadership has put the extension back into the bill, encouraged by outcries from governors and the National Conference of State Legislators.

It’s trying to corral the magic 60 votes needed for a substantive vote on the bill by easing the tax rates applied to hedge fund managers’ incomes and raising more revenues from oil companies.

Hard to tell whether this will work–or, if it does, whether Blue Dogs will again push back when the bill cycles back to the House.

If the FMAP extension fails, the District will have an estimated $77.6 million budget gap to close. Shortfalls identified in CBPP’s analysis range from $85 million in Maine to a whopping $480 million in Washington state.

No way these and other impending shortfalls will be resolved without larger public service job losses. Mark Zandi, an expert in the economics of economic recovery, says they could be at least as large as those we’ve already seen–“in all likelihood measurably larger.”

Do our business-friendly, deficit-minded members of Congress have a grasp on the impacts? We’ll find out soon, when the Senate votes on whether to proceed to a final vote on the jobs/tax bill.