Disputing the CBO’s jobs assessment is critical for Democrats who want to try moving a minimum wage increase through Congress this year.

This is one in a series of articles funded by a grant from the Northwest Area Foundation.

WASHINGTON — Tuesday’s minimum wage report from the nonpartisan Congressional Budget Office forced wage hike supporters into a bit of a balancing act.

On the one hand: Great news, a minimum wage increase will lift 900,000 people out of poverty and raise wages for 16.5 million workers. On the other: CBO is an outlier in warning a $10.10 minimum wage could imperil 500,000 American jobs.

That was the line of the day from most major Democrats who support raising the wage, from President Obama’s economic advisers (who, in what the New York Times called an “unusual twist,” publicly disputed the CBO) on down.

Disputing the CBO’s jobs assessment is critical for Democrats who want to try moving a minimum wage increase through Congress this year. Many advocates already acknowledge they’re unlikely to find much success in Washington, given Republican’s already stout opposition to a wage increase, on the grounds that it will hurt job creation.

Take the response from Reps. Keith Ellison and Raul Grijalva, who chair the Congressional Progressive Caucus, which typifies Democrats’ response:

Too many Americans are working seventy or eighty hours a week and living in poverty. Working in a job that pays the federal minimum wage should mean a working parent can take care of her kids. The CBO report released today confirms that paying Americans a wage they deserve helps hard working families get out of poverty and increases wages for those who need it most.  

According to the report, increasing the federal minimum wage to $10.10 will help 900,000 people get out of poverty and will mean a raise for nearly 25 million people. This means families will have more in their pockets to spend on food, rent and clothes for their children, which is good for them and for our economy.

But:

Six hundred economists, including seven Nobel laureates, wrote a letter stating that recent studies have found that ‘increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers.’ The CBO itself is careful to note that the projection of potential jobs lost in the report is an estimate and could be a ‘very slight reduction in employment.’

Minimum Wage: Too low or too costly?The letter referenced here came from the liberal Economic Policy Institute in January, just before Obama called for a higher minimum wage in his State of the Union. Other research — as the Washington Post references here — concludes the same thing, though conservative think tanks and business groups have released reports suggesting minimum wage hikes do cost jobs.

As Ellison and Grijalva note, CBO’s report hedges significantly when it comes to its predictions, noting that actual job losses could be anywhere between “very slight reductions” and 1 million. But the report’s initial conclusion is probably enough to solidify GOP resistance to raising the wage. When the U.S. Senate returns to work this month and takes up a minimum wage increase, CBO’s analysis could be Republicans’ front-and-center argument against it.

And if a wage hike somehow succeeds in the Senate, it will find few Republican allies in the GOP-controlled house.

“This report confirms what we’ve long known: While helping some, mandating higher wages has real costs, including fewer people working,” a spokesman for House speaker John Boehner said Tuesday, just moments after the CBO report came out. “With unemployment Americans’ top concern, our focus should be creating — not destroying — jobs for those who need them most.”

Devin Henry can be reached at dhenry@minnpost.com.

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48 Comments

  1. Job Loss Numbers

    It is important to note that the CBO did not do any original research on the effects on employment of a minimum wage hike, but just did an analysis of existing studies. In essence, the Office picked the conclusions it liked.

  2. No mention of multipliers

    I did a keyword search in the full CBO report, and there were no instances of the word “multiplier”. The CBO gave no consideration at all to the effect of the lowest-paid workers having higher incomes, even though they’re going to create jobs when they spend it. Some people will be laid-off, but other people will find jobs, and incomes at the bottom will be higher.

    1. Multipliers

      Perhaps, they used a different term. You might need to read the report.

      If only the minimum wager earner were isolated from all of the others in the economy who would also get a wage hike. That is a multiplier. Due to the wage hike, the minimum wage earner must bring his earnings to an economy where thing cost more due to increased labor expense. Others in the economy earning more than minimum wage will find themselves at the wage minimum in a more expensive economy. This will happen to a lot of workers if there is a $3 wage hike. Others will lose their jobs to self-service checkout kiosks; the McDonald’s Restaurant at LAX is already there.

    2. Spend on what from where? If they make more, I personally think the multiplier will occur mostly in other countries when they spend their extra dollars at Walmart etc.

      I am actually a fan of a higher Earned Income Tax Credit instead of a higher Minimum Wage. At least then we would see the tax increase and the subsidy. Whereas the higher min wage will increase the price of goods and services for all of us, and make some exports less competitive in the global market. It is kind of like a “stealth tax”.

      1. Spend on everything that has low income labor content. While much of manufacturing has gone off-shore, that manufacturing that remains here pays higher than minimum wage.

        There is a lot of labor in the service segment of the economy, some of it pays minimum wage. Examples: stocking shelves, point-of-sale clerks, washing dishes. Raising the wages of these jobs causes the cost of goods and services to increase for everyone.

        1. Compression

          I am assuming that higher bottom end wages would lead to raises for many at the lower end of the compensation scale. That current McDonald’s Supervisor making $9.50/hr won’t be too impressed with making the same as the fry guy.

          And when the price of everyone’s Big Mac meal goes up to cover the additional mandated wages. There will likely be more pressure in the work force to push for additional raises. And any costs/pay tied to the CPI will likely automatically increase, and some negotiations will increase the others over time.

          In summary, I think the CBO got the “loss of jobs” more or less correct. Since American consumers seem indifferent to where their products come from, I think the increase will push some more jobs out of the country. And an extra $2+/hr will make more automation cost effective in some instances.

          Remember: they went to fill your own pop to save money. Maybe soon we will have fill our own fries…

          1. Do American Consumers Seem Indifferent?

            How about America’s leadership? Consider the Federal Government’s Cash for Clunkers program, the top 10 trade-ins were all American cars; eight of 10 cars in the top-selling list were foreign cars. Since the government is handing out American taxpayers’ dollars, perhaps they could restrict the program to American makes and foreign makes built in America.

            No buyer loyalty encouraged by the Federal Government, but some consumers know better.

            1. Good Point

              Seems that would have been a logical prerequisite.

              I am thinking that was about getting old polluting inefficient cars of the road more than economic stimulus. Remember Obama was new and DFL was living large.

          2. Right now

            You probably don’t do your own grocery shopping but many checkout counters are do-it-yourself scanners. That’s on top of low minimum wage employees.

            There doesn’t have to be a raise in product cost. Big money CEO’s, like McDonald’s, can afford to do without another couple million on top of the $20 some million they now make a year. None of the talk about increasing minimum wage centers on CEO and top executive pay and it should. That should be a part of the deal. And so should the money the stockholder board officers make. $4320 a year increase in wages going to a minimum wage increase per person is going to break McDonald’s? I doubt it. Figure in the increase in sales from minimum wage earners and what does one get? An increase in the bottom line right? Without the need to increase the cost of the product.

            It’s inevitable that a continual lowering of middle class wages and the minimum wage is only going to be reflected in loss of sales, first for the mom and pop stores then the small businesses and eventually up to the capital equipment businesses and in turn that will be reflected in the stock markets. This is the perfect example of the domino effect. Currently some small business owners are beginning to realize this is what is going to happen to their bottom line if they don’t raise wages. Everything will be fine for those CEO’s and top execs who bail out with the cash though.

            1. Have we met?

              Why wouldn’t I do my own grocery shopping? Presently, the Cub Foods in my neighborhood has 4 self- service checkout counters and 12 more that are operated by an employee. Following the upcoming hike in minimum wages, watch for the self service counters to increase in count to a total of 8 or 10. Those are lost jobs. McDonald’s has self-service check-out at LAX; watch for more of those with a minimum wage hike.

              If you do the math, you will see that for a corporation this size of McDonalds cannot page for the minimum wage hike for all of their employees by paying their CEO nothing. It sounds good when playing the envy-the-rich card, but the math doesn’t support it.

                1. Thank You

                  Blossomed? Germinated is a more accurate characterization. 4 of 16 registers is hardly blossomed. When self-service checkout exceeds employee checkout, it will have arrived.

                  1. Subjective

                    your experience in Cub is only one example and it’s extremely easy to extrapolate this technology into other services which has happened in many other stores. How many of those 16 Cub registers actually had someone manning them?

                    1. One Example

                      I gave one example. I have seen similar check-out scenarios at Home Depot, CVS Pharmacy, and Rainbow Foods. In each, the manned registers outnumbered the self-service stations.

                      Cub was busy last night due to pent up grocery demand due to the snow storm. About 8 or 10 employee operated registers were in play, which is typical for that store when it is busy.

                    2. of course they do,

                      but it has spread beyond one kiosk here and there which is proof enough that technology has progressed beyond “germination”. As I recall, you folks ridiculed the President when he pointed this out years ago. The local Walmart I was in this week has expanded from two to twelve. It’s never going to be a 50/50 split, but my point still stands. Technology is going to continue without an increase in minimum wage playing a role. It’s played no role thus far. You’ll have to come up with a better argument for your desire to keep indentured servitude a reason for corporate America to give CEO’s more money.

                    3. “You Folks”

                      Trading in stereotypes?

                      No one is arguing that technology is not advancing; technological progress has been accelerating since the beginning of the industrial revolution.

                      I agree with the CBO that increasing minimum wages will cost jobs. Many proponents of a higher minimum wage, here and in other places, deny this fact.

                      P.S.: No one is arguing “for corporate America to give CEO’s [sic] more money.”

                    4. Acceleration

                      Remember what I said somewhere…

                      The higher cost differential just accelerates the speed of change.

            2. Guilty as Charged…

              I rarely do the grocery shopping anymore. My wife says I buy to many unhealthy things that are not on the list. However for years I did shop when she was operating a full time inhome daycare, so I was skilled at pushing one cart while pulling the other.

              As for business decisions, the goal is to optimize operations so the stock holders maximize their profit through stock price increases and dividends. Just as it is the goal of consumers to get the most value for the money they spend.

              So the automate/off shore or hire labor decision is made based on comparing the costs and benefits of each for conducting that particular task. Therefore the CEO compensation is immaterial to the decision. Therefore the higher minimum wage will raise the cost of hiring labor.

              Do you freely to choose to pay more for a product or service just because you could afford to? Or do you choose to pay what the market values it at? As I continually argue, many of these problems would disappear if American’s just chose to buy high domestic content products and services. Of course most of us are like the business owners and prefer to maximize our personal return on investment.

              As for management compensation, though I think there is some collusion, I think most employees are paid at or below what the market values them at.

              1. Self-service checkout

                I make it a point to seek out the lane with a real-live human being behind the cash register, even if I have to wait in a longer line to do so. And if any of the stores I frequent decide to do away with human cashiers altogether in favor of self-service checkout, they WILL be hearing from me.

                As for that whole legal requirement to “optimize profit for stockholders” thing – I’m liking this “benefit corporation” idea I see is going to be taken up by the Legislature this year:

                http://www.mprnews.org/story/2014/02/23/businesses-in-minn-could-soon-be-able-to-do-well-and-do-good-?from=hp

                It’s about time businesses got the opportunity to make some choices based on the common good without worrying about being sued for doing so or being required to make the changes necessary to qualify as a non-profit.

                1. Have you ever worked a 10 hour day as a checkout clerk?

                  It’s a brutally dull job and standing 10 hours is hard on your feet. If they automate all the checkouts I’d be fine with it. Automation of dangerous or repetitive tasks is a net benefit to society.

                  Improving productivity should ALWAYS be the goal because increasing productivity creates wealth. Automation isn’t a problem as long as the productivity gains are distributed widely. At the moment nearly all the productivity gain is being distributed to the top through government incentives that favor the financial sector at the expense of the rest of the economy. We can change the incentives through government. There is no reason why the labor of managing a hedge fund should be taxed differently than the labor of managing automated checkout lines.

                  1. New jobs

                    So, do we find them their new jobs BEFORE we automate them out of the jobs they already have or AFTER?

                    1. Education and training

                      We should spend some of those productivity gains on quality education so people are already trained when we automate their unskilled position. Spending on education to increase skills is an economic multiplier.

                    2. And between now and then?

                      What are you going to tell all those people when you (or some greedy retailer) kick them off the job they’re currently relying on to pay their bills?

                    3. What is the alternative?

                      Are you suggesting we hire back all the elevator operators, telephone operators, typists, newspaper typesetters and telegraph operators? Do you only buy produce from someone who plants it by hand with a stick? A checkout clerk is unskilled labor. If the person displaced has a high school education they’re already more skilled than they need to be a checkout clerk. There are training programs available at the job service centers but they could certainly be improved.

                      Labor saving technologies are the reason we have modern society. People will make better tools, without them we’re all still hunting and gathering.

                      I’ll patiently await your response since it will take a few days for you to have your computer programmer encode it into Hollerith cards and feed it into your mainframe.

                    4. I’ll leave it to you . . . .

                      to explain all this to the person getting kicked out of the paying job they currently have under the expectation that they can immediately find something else to pay the bills in this amazingly robust economy (sarcasm alert) we’re all living through.

                      Until then, I’ll keep supporting the current employment of that person by taking my business to the cash register that has a real live (wage-earning) person standing behind it.

            3. If interested in the math …

              The latest annual compensation numbers I could find for new McDonald’s CEO Don Thompson is $13.8 million. If we split his pay among McDonald’s 1.7 million employees, they would each get $8 per year. Assuming the average employee works 16 hours a week for 50 weeks, they work an 800 hour year. $8 into 800 hours = $0.01. One cent per hour is the raise McDonald’s can pay by getting their CEO to work for free. How would you feel if your employer offered you a one cent hourly raise?

              1. I don’t who you are answering but…

                Don Thompson. This person is connected to 86 board members in 3 different organizations across 6 different industries. Not to mention his own top executives. They need to reevaluate their compensation too. It’s their compensative versus the minimum wage. There’s usually a CFO and a COO (no joke) included in a company’s executive group. Why exclude them?

                Remember, the employees already have wages. If you split his total pay among the employees they’d get an additional $8 an hour which is math for sure, but actually that’s not what they are asking. Aren’t they actually asking for just a $2.25 raise? Math is great but it has to be in keeping with the argument or it’s pointless.

                I would expect more than a one cent raise. However many employees get a $.00 percent wage increase.

                By the way, it’s unfortunate that the phrase is put this way, “supply and demand”. It tends to indicate supply first demand second, but it’s actually “demand first then supply”. One can supply billions of gopher calls (like duck calls), but the demand won’t go up just because they are available. If the demand was there then it makes sense to supply them. Then you’d have to look at cost, not only just for gopher calls but also for everything else that’s in demand. Do you price it at what people can afford? Or follow the cost of living increase instead?

                1. You brought the topic of McDonald’s CEO to the Converstation

                  Therefore, I am answering you.

                  Why exclude the CFO and COO? Why, indeed, did you not include them? By all means add them and some more top executives who we can convince to work for free, and eventually we can add ten cents to the hourly rate of every McDonald’s worker!

                  1. Work for free?

                    The CEO of McDonald’s got a 9 million dollar bump in his latest package…from 4.1 to 13.8 million. The guy he replaced went from 8.8 to 27.7 million. Thirty years ago, CEO’s made 42 times what the rank and file employee made…now it’s at 354. Spare me the drivel about not finding a couple of extra bucks an hour to give to the people that are actually the face of your company.

                    1. Choose for yourself what to read.

                      Yes, the $13.8 million dollar annual compensation is the number I used in the calculation. And, as I showed, spreading the CEO compensation among the people that are actually the face of the company will improve their compensation about $0.01/hour. Spare yourself the truth by deciding what you read.

                    2. The truth is your math

                      is disingenuous at best. This isn’t about redistributing a CEO salary,…in the case of McDonald’s it’s about a company reporting 1.5 billion in profits paying it’s front line workers a median wage of less than $9.00 per hour while the American taxpayer is shelling out 1.2 billion in public assistance to those very workers. It’s about how a fraction of those profits could go towards the workers and decay the subsidy that you and I pay for. There’s corporate responsibility but there’s also a moral responsibility…a concept that way too few of you folks never even consider in your quest for financial gain at all costs. Extra pennies tacked on to a lousy hamburger is all it would take to make the front line worker just a bit more comfortable. Pennies….

                    3. The Truth is Never Disegenuous

                      You make a lot of assumptions regarding someone you don’t know; that is disingenuous. For instance, “way too few of you folks never even consider in your quest for financial gain at all costs.”

                      Excerpt from the link below: “So, hands up everyone who thinks that abolishing Medicaid, SNAP and the EITC will lead to WalMart and McDonalds increasing the wages they pay their workers? Anyone? Quite, so therefore it cannot be the companies that are gaining from the subsidies: it must be the workers”

                      http://www.forbes.com/sites/timworstall/2013/11/13/apologies-but-welfare-payments-to-employees-are-not-subsidies-to-walmart-and-mcdonalds/

                    4. Assumptions?

                      No…by virtue of your many posts and single-minded devotion to protect the 1% at the cost of the average worker, I don’t have to assume anything about you. Using phrases like ” The rest of that discussion is just a lot of politics-of-envy promotion.” illuminates what you’re about all too clearly.

                  2. Better Math

                    Steve,
                    I like your math better than John’s, you show your numbers.

                    1. I like

                      Jason’s answer better than John’s (yours)! I agree with Jason also. I understand why you like Steve’s funny numbers though. They obscure the point.

                  3. Wow

                    Lets add the Ex-CEO Skinner who’s pay increased to $27.7 million as a board member when he stepped down as CEO. The “point” is what the top exec’s make versus their minimum wage workers. You assume that it’s just fine for someone to make millions while their workers work on a 0 hour based work contract and for minimum wage. Skinner then makes $27.69 million more than a minimum wage worker who actually works full time for them for a year. What about the difference between the $8 raise you suggested and the $2.25 raise the workers are actually asking? McDonald’s tells their workers to go get food stamps to help stretch their pay…how about that.

                    1. Still struggling with the Math?

                      I don’t eat at McDonald’s, so I am not contributing anything to the top executives nor the front line workers. If you don’t like their business practices, vote with your feet and walk down the street to another restaurant. What do you propose to do to decrease executive compensation, pass a law? If so, contact your legislators. The rest of that discussion is just a lot of politics-of-envy promotion.

                      Back to the math, the $8 I calculated is clearly identified as an annual number. The $2.25 you mentioned is an hourly number, so it is not comparable due to the units disparity.

                    2. Thats why…

                      I liked your math.

                      My thought was that folks were in such a hurry to disagree with you that they didn’t read what you wrote. It seems to happen around here.

                    3. well

                      That’s great that you don’t eat at McDonald’s. I didn’t think you did. I don’t either. Back to the math, it’s true I mentioned an hourly number. It’s also true I didn’t say to take the raise only out of the CEO’s compensation. I mentioned a few others as well. My thinking was that the CEO could lower his compensation to simply help with the situation.

                      I do think that the CEO’s of this country are over compensated. It’s a few hundred times more than it was a few decades ago when comparing it to the middle class wage increases. That’s not to mention the minimum wage earners. I do contact my legislators. I’m sure the executives will feel some empathy towards their workers, just not now or in the foreseeable future. What we are talking about is the politics-of-greed which once brought down the economy in the 1920’s and is back again for another go at it.

                      Really, why does anyone need several million dollars a year to live on? And then tout that $7.25 is good enough as the minimum wage for others?

              2. lets take profits

                of $5.5 billion dollars for McDonald’s. Assume that out of 1.7 million who work for McDonalds only about .85 million make minimum wage (most likely not quite that many do). Then take $2.25 times 16 hours times 52 weeks. It’s roughly 1.59 billion from 5.5 billion or 3.81 billion in profits left over.

                1. Stock Price Impact

                  So if we choose to reduce their profit/earnings by almost 30%, I assume that would reduce the stocks value by ~30% if the market wants to maintain the same Price to Earnings ratio.
                  http://finance.yahoo.com/q?d=t&s=MCD

                  Therefore every mutual fund, pension fund, 401k, etc would see their McDonald’s stock go from $96 to $67 per share. I sure don’t want to explain that to the public.

                  Remember my view, raising the minimum wage is a stealth tax. Let’s just jack up the Earned Income Tax Credit, at least then we would know how much we as a society are spending to subsidize these people / jobs.

                  1. profits

                    After all operating costs including stock funding. Spending to ‘subsidize these people’??

                    1. No

                      Stock price is not an operating cost that is incurred by the company. Investors determine this independently based on the companies potential to generate future profits.

                      If the potential profits drop, people will be unwilling to pay as much for the stock.

  4. Funny….

    No matter the party, if the CBO agrees with their premise they laud it, but if it disagrees with their premise, they will discredit it.

  5. Acheive Mpls’s view?

    I would be curious to know the position Achieve Mpls takes on this issue. Clearly they feel that summer employement for a teen has a life changing impact. Whereas an extra $50/mo to an adult would help pay the bills, but not change their living conditions. Does the loss of one counter the gain of the other? As an organization with a job placement function, they are also in a good position to assess how a wage increase would impact their job providers.

    For those wanting more data on this issue check out Chapter 5 of Thomas Sowell’s Economic Facts and Fallacies.

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