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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

February 19, 2014 at 10:14 AM

The CBO minimum wage report and us

The new report from the non-partisan Congressional Budget Office offers minimal guidance for the effort in Seattle to raise the minimum wage. The reason: It looks at what might happen if the federal minimum is raised from $7.25 an hour to $10.10. Here, advocates are proposing $15.

As reported in the Seattle Times, the CBO report projected that a $10.10 minimum wage could cost half a million jobs. On the other hand, it would lift 900,000 families out of poverty. This isn’t as simple a calculation as it appears. Some jobs would indeed go away as small businesses folded, while other companies cut back hours, eliminated the least productive employees and invested in automation.

On the other hand, as economist Dean Baker broke it down:

It did not say that 500,000 people would lose their jobs. This is an important distinction. These jobs tend to be high turnover jobs, with workers often staying at their jobs for just a few months. While there will undoubtedly be cases where companies go out of business due to the minimum wage hike (many small businesses are always at the edge, so anything can push them over) the vast majority of the lost jobs are likely to be in a situations where businesses don’t replace a person who leaves or don’t hire additional workers as quickly in response to an uptick in demand.

This means that we are not going to see 500,000 designated losers who are permanently unemployed as a result of this policy. Rather, the projection implies that workers are likely to find it more difficult to find new jobs when they leave an old job or when they first enter the workforce. With 25 million people projected to be in the pool of beneficiaries from a higher minimum wage, this means that we can expect affected workers to put in on average about 2 percent fewer hours a year. However when they do work, those at the bottom will see a 39.3 percent increase in pay.

The federal minimum has been lagging for years. And modest minimum-wage increases in the past haven’t produced the dire job losses that opponents predicted.

But we are left with many questions. The economy produced more jobs in the past. Industry consolidation and online shopping had not devastated so many positions. The ladder up is missing many rungs now. In addition, 2.2 million restaurant servers have been stuck at a $2.13 an hour minimum for 22 years (something to consider the next time you leave a tip).

Other questions are left unanswered about the way the working poor actually works. Many minimum- and low-wage workers I talk with cobble together a living from working more than one job. Many low-wage workers scramble for hours. They are not like the cubicle proles of Dilbert with salaries guaranteed at 40 hours plus benefits. The former have also been hard hit by the recession and weak recovery. A new report from the Economic Policy Institute shows that those in the 20th percentile of wage earners saw their real wages decline in every state from 2009 to 2013.

As for Seattle, common sense would indicate that the positive and negative effects identified by the CBO would be more pronounced here if a $15 minimum wage were phased in. Neither is to be taken lightly. But how many low-wage workers in Seattle actually live in the city, and how would that play out? In a city that prizes unique local shops and depends on a robust tourism industry, what are the consequences? On the other hand, this is one of the most prosperous cities in America. Economics can’t answer questions of morality and fair play.

Raising an individual above the federal poverty level means wages that get him or her over $11,670 ($23,850 for a family of four). The result is hardly a ticket to move to Clyde Hill.

America faces simultaneous crises of wages (stagnant or falling for most since the mid-1970s), opportunity, jobs, inequality, company creation, innovation and failing infrastructure. Some are a result of a changed world, many because of deliberate policy changes that benefit the most powerful.

Raising the minimum wage might address some of this — or backfill it for millions left behind. But it won’t be enough to restore the middle class and the abundant pathways to it that once existed.

Today’s Econ Haiku:

It’s not just profits

This CEO must earn trust

That’s a new Target

 

 

Comments | More in Income/living standards | Topics: minimum wage

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