Politics

02.18.14

The Job-Killing Minimum Wage?

A new congressional report says that the minimum wage will kill jobs. But before you take that for gospel, here are a few facts to consider.

In the fight over increasing the minimum wage, Republicans—who oppose the boost to $10.10 an hour—have received an assist from the Congressional Budget Office. According to a report released this afternoon, a minimum wage increase of the kind proposed by Democrats would reduce employment by 500,000 jobs.

Unlike the storm over Obamacare’s job losses—which were caused by a drop in the supply of labor—this is a product of lower demand. With higher wages in effect, says the CBO, employers are less likely to hire.

On the other end, however, are the 16.5 million Americans who would receive higher wages as a result of an increase to the minimum wage, as well as the 900,000 Americans (out of 45 million) who would be lifted out of poverty. What’s more, it’s possible that—by increasing the income of so many workers—you offset the immediate job losses. To wit, here is the Economic Policy Institute with an analysis of the minimum wage and its impact on employment:

Based on the economic multiplier effect that results from putting additional income in the hands of lower-income workers, raising the minimum wage will likely have a modest but positive impact on job creation, leading to an additional 85,000 net new jobs when fully phased in.

Lower-income earners spend their income more immediately, more completely, and more locally, than do higher income earners, and therefore generate more economic activity. Increasing the wages of 27.8 million workers by $35 billion over the phase-in period generates an additional GDP impact of $22 billion.

It’s worth noting that, while there’s enough research on the minimum wage to support any assertion, the large majority of results are clustered around the conclusion that raising the wage has little to no effect on employment. Barring a massive increase, odds are good that you won’t lose anything by boosting the minimum wage.

I should also say that this gets to why—as far as raising incomes is concerned—the minimum wage isn’t the greatest option. An expansion of the Earned Income Tax Credit—to raise payments and include single, childless workers—could increase incomes without the hit to the labor market. Indeed, a combination of the two policies—a larger EITC and higher minimum wage—could substantially boost incomes and provide enough stimulus to the economy to completely outweigh the adverse effects.

But, with the notable exception of Florida Senator Marco Rubio, it’s hard to find Republicans who would support a stronger EITC, or any measure that would move funds from the wealthy to the poor. Which leaves the minimum wage at a disadvantage as well. The difference, of course, is that the EITC is a federal policy, while individual states can set a minimum wage. And it’s for this reason that Democrats have committed to the latter; even if they lose in Congress, they can still take their fight to America’s statehouses.