The report released last week by the Congressional Budget Office asserting that increasing the federal minimum wage will raise about 900,000 people above the poverty level while resulting in the loss of roughly 500,000 jobs generated the same knee-jerk response among the far right as did the CBO report that supposedly claimed the Affordable Care Act would cost jobs. That predictable reaction overlooks the fact that the CBO report is in agreement with many other studies as to the benefits of a minimum wage hike, and while it is out on a limb on job losses, it is not as far out as wage hike foes claim.
Increases in the minimum wage by states have provided a controlled experiment of two decades duration on the impact of the increases, and it has shown that lifting the wage does not hurt employment. Last month, 600 economists from the Economic Policy Institute sent a letter to President Obama urging an increase in the minimum wage from the shameful $7.25 an hour, which is below the poverty rate, to a modest $10.10 an hour by 2016, as proposed in the Senate legislation. The letter from the economists, several of whom are Nobel Laureates and all of whom have doctorates, asserted that the “weight of evidence” is that this increase will not reduce jobs and will in fact boost the American economy by $22 billion in the initial phase-in, creating 85,000 new jobs in the process.
A study released one year ago by the Center for Economic and Policy Research (CEPR) found that businesses would employ “adjustment mechanisms” in reaction to a phased-in hike in the federal minimum wage. The CEPR said these mechanisms would include small price increases, reductions in wages of higher earners and a reduction in turnover among low-wage workers. “Given the relative small cost to employers of modest increases in the minimum wage,'' the report concluded, “these adjustment mechanisms appear to be more than sufficient to avoid employment losses even for employers with a large share of low-wage workers.”
The CBO's assertion that 500,000 jobs, or 0.3 percent of the workforce, could be lost was followed by an important qualifier: “As with any such estimates, however, the actual losses could be smaller or larger; in CBO's estimate, there is about a two-third chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.” The 500,000 figure is the midpoint in a range so large that the CBO is essentially saying it is impossible to know the job impact of a minimum wage hike to $10.10 an hour with any certainty.
The CBO and the organizations that have studied the impact of a minimum wage hike agree on much. The CBO report predicts that 16 million low-income workers would benefit directly and another 8 million workers making slightly more than minimum wage would receive raises. More than half of the 900,000 workers moved above the poverty line would be full-time workers and women, enabling parents to properly feed and clothe their children. Because low-income Americans will have more money to spend the U.S. economy will get a much-needed shot in the arm. And with so many Americans no longer having to rely on food stamps and other benefits provided to the poor, taxpayer dollars spent on funding the social safety net will decline.
In the latter case, corporate abuses of the social safety net would be reduced. According to a report by economists from the University of California at Berkeley and the University of Illinois, $7 billion in government aid is paid annually to workers in the fast-food industry. These hugely profitable corporations are not only cheating their workers they are cheating taxpayers, and if they are required by federal law to pay their workers a living wage, that $7 billion will remain in taxpayers' pockets.
The case for a hike in the minimum wage only gets stronger. Regardless of how badly Washington, D.C., botches this effort, Beacon Hill should increase the minimum wage for Massachusetts. It will help low-income workers, who deserve it, and benefit the state's economy as well.