December 6, 2023

Minimum Wage Myths

By Douglas Cohn and Eleanor Clift

WASHINGTON – The Congressional Budget Office is one of the rare honest brokers left in Washington, where extreme partisanship has inflamed so many of the town’s institutions. In two of the non-partisan CBO’s most recent reports, there was something for both sides left and right, to consider and chew over and talk up for their respective bases.

On the effects of the new health care law, the CBO said two million people would be leaving their jobs because they would no longer be locked in because of their need for health care insurance. Republicans had a field day with that, blaming Obamacare for creating a disincentive to work. The same report credited the Affordable Care Act with lowering the deficit and slowing the cost of health care. Democrats touted that.

Then the CBO weighed in on the administration’s proposal to boost the federal minimum wage from the current $7.25 an hour to $10.10 an hour in stages over three years. The CBO estimated that some 500,000 jobs would be lost, another bonanza for Republicans, while Democrats pointed to the 800,000 people that the CBO said would be lifted out of poverty by the higher minimum wage.

It’s important to know that the CBO did not conduct its own research to come up with these numbers, relying instead on a number of outside surveys by academic institutions and think tanks, and then averaging them out to reach its conclusion. The most suspect number is the 500,000 jobs lost, and the most interesting reaction to the CBO report was this week’s announcement that the clothing chain, The Gap, would voluntarily increase its minimum wage to $10.10 for its 65,000 employees.

That is smart public relations, and a smart business practice. It’s reminiscent of what Henry Ford did exactly a hundred years ago when in 1914 he more than doubled the wages for workers building the Model T Ford. Other factory owners thought he’d lost his mind, but he knew exactly what he was doing. Pay your workers a decent wage; they will prosper, and so will you.

The CBO report analyzes the proposed increase in the federal minimum wage as though we have no track record to measure the impact. The minimum wage was last increased and signed into law during the George W. Bush administration. There were no dire effects. Exactly where these lost jobs would come from according to the CBO is a mystery. If companies could get by with fewer people, they would be doing that right now, not waiting for a wage hike.

Secondly, extremely low paying jobs are being subsidized by the government because they must rely on food stamps and housing subsidies and Medicaid. They bear the stigma of having to depend on handouts, when the stigma rightfully belongs to big corporate chains like McDonalds and Walmart because the government subsidies are actually subsidizing those corporations.

No business person in America is hiring someone they don’t need, and when they warn that they would have to lay off people if the minimum wage goes up, that sounds more like a hollow threat than reality. If the minimum wage had kept pace with inflation it would be slightly higher than the $10.10 that’s being proposed. Lifting 800,000 people out of poverty, as the CBO claims in its report, would be a savings for the federal government. Washington would have that much less to pay out to support these workers, and the impact of that would ripple through the economy. The dignity of work decently compensated for these workers should be the bottom line that the policymakers take into account, not the complaints of overpaid CEOs.

© 2014 U.S. News Syndicate, Inc.
Distributed by U.S. News Syndicate, Inc.
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