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CBO: Minimum Wage Snake Oil

Which of the following two factors would have the greatest impact on the economy: Raising the wages of less than a million Americans from slightly below the poverty line to slightly above it or putting half a million poor people out of work? The answer to that question may be the deciding factor in determining whether Congress accedes to President Obama’s demand to raise the federal minimum wage to $10.15 from the current figure of $7.50. But then again, it may not. Raising the minimum wage is a popular idea. The president’s catch phrase, that Congress should “give America a raise,” polled well before and after it was used in the State of the Union address. Every discussion of the proposal hinges on conservatives pointing out the potential harm to the economy and to employment in the government intervening in the market in this manner only to have their arguments dismissed by liberals who simply say that economic principles must bow to the public desire to give low wage workers more money.

But now that the non-partisan Congressional Budget Office has issued a report about the potential impact of the president’s minimum wage hike proposal, it’s no longer possible to ignore the fact that a lot more harm than good will be done if Congress is foolish enough to pass such a bill. The CBO report is being reported as having “mixed results,” and that is true. The report says the wage hike will boost the income of 16.5 million Americans. That is not news. You don’t need an economics degree to understand that giving people more money means they will have more money. However, the increase would be enough to push some 900,000 over the poverty line. That’s the good news for the president in the report. Less helpful to his cause is the fact that it also says that an estimated 500,000 Americans will loose their jobs, just as conservatives have been arguing all along.

How do you weigh the impact of these two aspects of a wage hike? It’s actually not all that complex. Nor does it require knowledge of higher calculus. While the increase will marginally help some people, the difference won’t be enough to make much of a difference for them. An extra $3 per hour would be useful to anyone. But the difference between $7.50 or whatever low wage some people are currently earning and the $0.00 they will be receiving when their employers are forced to lay them off because of the increased costs the new law will impose on their businesses will be felt far more both by the newly unemployed and the government that will now have to pay them unemployment benefits. The damage the minimum wage increase will do far outweighs the minimal helps it gives some recipients.

The problem with highlighting the advantages the extra money will give those who will receive the hike is that the jobs affected are still entry-level positions which were never meant to be enough to support a family. While we should not entirely dismiss the help a wage increase gives an individual, the figures are so modest that they are not likely to make that much of a difference. The wage hike will be welcomed but it won’t be enough to change anyone’s life.

Moreover, a large percentage of those who will benefit from the increase are not the working poor or any other kind of disadvantaged group. These are largely made up of teenagers of middle and upper middle class families working at summer or part-time jobs who will be among the biggest winners of the minimum wage proposal. The report points out that a whopping 29 percent of those who will benefit from the president’s largesse are actually members of families earning three times the income deemed to be at poverty level while a further six percent come from families with six times or more the poverty level.

Balanced against the minimal help given the working poor and well-off teenager is the far greater pain of those who will lose their jobs. Sending half a million Americans into the ranks of the unemployed and the grinding poverty that goes with it is bad enough. But doing so will also place intolerable demands on the public purse that will be further drained to pay for the poverty benefits for which these newly unemployed will now be eligible.

What do Democrats say to these facts? Their answer seems to be the traditional liberal practice of sticking their fingers in their ears and saying, “la, la, la.” The administration and people like House Minority Leader Nancy Pelosi are now reduced to claiming that the CBO is wrong and that there will be no impact on employment even if logic and basic economics tells us otherwise.

The minimum wage increase may be popular but, as the CBO points out, it remains economic snake oil. Though succumbing to public sentiment and the president’s demagoguery may seem like the better part of valor, Republicans need to stand their ground and protect the nation and the half million poor Americans at risk from this dangerous proposal.



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