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White House: Raising minimum wage will alleviate poverty without reducing jobs

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The White House/s Council of Economic Advisors challenged the Congressional Budget Office (CBO)'s finding that raising the minimum wage to $10.10 per hour could cost 500,000 job, saying that the CBO's findings ignored a consensus among economists that raising the minimum wage would have zero impact on employment, while giving a raise to 16.5 million and lifting millions out of poverty.

Republicans, of course, jumped on the CBO statement that raising the minimum wage could lead to a 0.3 percent decrease in employment - ignoring the part where CBO also said it could have zero impact - to decry the potential for losing up to 1 million jobs, as an excuse for opposing raising the minimum wage.

But the primary purpose of raising the minimum wage is to counter the gross and growing inequality in income, the moral outrage of full-time workers and their families still forced to live in poverty and needing to rely on government provided/taxpayer paid social safety net services including food stamps and Medicaid.

Other measures - like the American Jobs Act and the Infrastructure Bank - would actually create jobs, but Republicans have shown no willingness to lift a finger to do anything that would create a single job.

If Republicans are so upset about lost jobs - something they have not been the least troubled by as jobs were being lost by the hundreds of thousands going back to 2006, throughout the Sequester and as recently as October when they shut down the government altogether - they can show their "concern" by adopting any of the many measures Obama has proposed to actually create jobs: like the American Jobs Act, the infrastructure bank, which would put millions of Americans to work, much as the American Recovery and Reinvestment Act generated 1.6 million jobs a year).

The proposal to raise the minimum wage should be taken for what it is: a way to remedy the disgusting reality that while the top 1% have seen their incomes (and wealth) grow robustly - in fact accounting for all the increase in income since the 2008 recession -while the rest of Americans have seen the purchasing power of their incomes erode.

The fact is, $7.25 minimum wage is worth less than the minimum wage was worth in 1960s - in fact, the value peaked in 1968 when it was $1.60, or $7.21 in today's dollars. The real value of minimum wage is roughly the same as what it was in the 1950s, despite the fact that the typical American family’s income has doubled since then. (Isn't that the Good Ol' Days that Republicans want to go back to? When women could stay at home and households only needed one income to live on?)

Raising the minimum wage to $10.10 would give a raise to 10.5 million out of poverty, and benefit millions more. And remember, only 12% of minimum wage earners are teenagers; the overwhelming majority are adults.

The value $10.10 was not taken out of thin air (Republicans like to preposterously charge "if you raise to $10.10, why not $1000?).

"The research we have on the minimum wage is within the range of the types of minimum wages we’ve seen at the federal, state and local level over the past couple of decades; $10.10 is well within that range," Jason Furman, Chairman of the Council of Economic Advisors, told reporters during a press availability. "In fact, it would still be below the peak value of the minimum wage in the late 1960s. It would be below the real value of the minimum wage you’ve seen in some other cases. So for that reason we’re comfortable that that value is within the range that had been considered by the economic studies that we’re drawing on, in terms of its impact on employment."

President Obama had earlier called for increasing the minimum wage to $9.

Furman explained that he has since supported the $10.10 rate, saying, "I guess I’d say substantively it was one type of proposal that benefitted a wide swath of workers. This benefits 16.5 million directly below $10.10, and then CBO says that as many as 8 million who are just above that line would benefit. That’s substantially more than at $9 an hour. If you look at the poverty line for a family of four with one full-time worker who is working full-time, $10.10 takes that family -- if they’re working full-time -- at the minimum wage from below the poverty line to above the poverty line. And, as I said, we don’t accept the conclusion in this report that this reflects consensus of economists, and that zero employment within the range of $10.10, $9 -- any of those numbers -- would be a perfectly reasonable estimate of the employment impact."

Another objection is that raising the minimum wage would somehow "transfer wealth". From who? From the CEOs who are making 400 times what their workers are - that's the equivalent of pocketing in one year what four families will make in their entire working lives. From owners like the Walmart heirs whose company pocketed $15 billion in pure profit last year and have as much wealth as the bottom 42 percent of all Americans, when - how will their lifestyles be harmed if they paid their workers a living wage, instead of as many as 80 percent of their workers in stores relying on Food Stamps?

Overall, though, raising the minimum wage is a win-win-win for the economy and for employers.

Indeed, something the CBO overlooked in its analysis is the impact a higher wage has on raising worker productivity, reducing costly turnover and absenteeism, improving morale among the workforce - all of which reduce a company's expense and raise revenue.

"Overall the logic for the finding that raising the minimum wage does not result in large adverse impacts on employment is that paying workers a better wage can improve productivity and thereby reduce unit labor costs," Furman and Betsey Stevenson stated in a blogpost. "These adjustments, along with others that firms can make, help explain why the increase in the minimum wage need not lead to a reduction in employment. Higher wages lead to lower turnover, reducing the amount employers must spend recruiting and training new employees. Paying workers more can also improve motivation, morale, focus, and health, all of which can make workers more productive. In addition, by reducing absenteeism, higher wages can increase the productivity of coworkers who depend on each other or work in teams. In addition, businesses can adjust in other ways rather than reducing employment (for example, by accepting lower profit margins). CBO’s estimates do not appear to fully reflect the increased emphasis on all of these factors from the recent economics literature."

This is beyond the fact that more workers would be able to afford actually buying the goods and services they produce, raising consumer demand.

And it is the weak consumer demand that has been the biggest roadblock to companies increasing their hiring, creating jobs, and bringing down unemployment rates (which would in turn be a pressure on higher wages) - even despite the record profits, $2 trillion in cash that companies are sitting on, and record stock prices.

So raising the minimum wage would ultimately expand employment, not reduce it.

Furman also challenged the idea that raising the minimum wage would reduce employment by pointing to studies in localities where the wage was raised, noting, "zero is a perfectly reasonable estimate of the impact of the minimum wage on employment based on research that began with David Card and Alan Krueger comparing minimum wage increase in New Jersey to fast food restaurants across the border in Pennsylvania that didn’t have them, to more recent research that’s taken basically the same method but applied it to hundreds of contiguous county pairs where one of them raised the minimum wage, one of them didn’t. You compare the employment in one county as compared to the other."

Raising the minimum wage is a wildly popular idea - about 75% of Democrats and 59% of Republicans favor raising the minimum wage.

So you should ask yourself, Why would Republican Congressmembers be opposed? For the same reason they broke with the Tea Party in adopting a clean bill to raise the debt ceiling, without more hostage taking: they are most fearful of the donor class and the donor class want to keep workers impoverished.

Because these days, thanks to the Supreme Court's Citizen United decision, money is power. And they aren't giving up any of it.

That's why they aren't going to vote to raise the minimum wage, just as Republican Senator Bob Corker interjected himself to threaten Volkswagon workers in Chattanooga against voting to join UAW.

Senator Bernie Sanders (I-Vt) put it this way: "Currently, powerful forces in the Republican Party, under the influence of the Koch brothers and other billionaire families, continue to call for major cuts in programs desperately needed by working families. While the rich become richer and the poor become poorer, these billionaires are waging a relentless fight to cut nutrition programs, education, health care and more.

"Incredibly, instead of supporting an increase in the federal minimum wage of $7.25 an hour, they want to end the concept of the minimum wage -- and create a situation where workers in high-unemployment areas could be forced to work for $3 or $4 an hour. For them, 'freedom' means that desperate people are 'free' to work for starvation wages."

Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers

Here are more specifics, from Council of Economic Advisers Jason Furman and Betsey Stevenson blogpost about the impact of raising the minimum wage to $10.10 and the CBO report:

The new Congressional Budget Office (CBO) report finds that 16.5 million workers would get a raise from increasing the minimum wage to $10.10 per hour and this would help millions of hard-working families, reduce poverty, and increase the overall wages going to lower-income households.

On employment, CBO’s central estimate is that raising the minimum wage to $10.10 per hour would lead to a 0.3 percent decrease in employment and CBO acknowledges that the employment impact could be essentially zero. But even these estimates do not reflect the overall consensus view of economists which is that raising the minimum wage has little or no negative effect on employment. For example, seven Nobel Prize winners and more than 600 other economists recently stated that: “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

The following are six key points from the latest CBO report. For more information, last week the Council of Economic Advisers (CEA) released a summary of the economic case for raising the minimum wage.

1. CBO finds that raising the minimum wage to $10.10 per hour would directly benefit 16.5 million workers. According to today’s CBO report, 16.5 million people making less than $10.10 per hour would get a raise if the minimum wage is increased. This figure does not include CBO’s estimate of as many as 8.0 million workers who currently earn just above $10.10 an hour but could also potentially see a raise due to the “ripple effect” of a shifting wage structure.

2. CBO finds that raising the minimum wage would increase income for millions of middle-class families, on net, even after accounting for its estimates of job losses. Middle class families earning less than six times the poverty line (i.e., $150,000 for a family of four in 2016) would see an aggregate increase of $19 billion in additional wages, with more than 90 percent of that increase going to families earning less than three times the Federal poverty line (i.e., $75,000 for a family of four in 2016). On net CBO estimates that national income would rise.

This finding is consistent with the fact that 62 percent of expert economists polled by the University of Chicago Booth School of Business agreed that the benefits of raising the minimum wage outweigh any potential costs, as compared to only 16 percent who disagreed

3. CBO finds that this wage increase would help the economy today. Specifically CBO finds that the extra purchasing power for workers will expand aggregate demand and strengthen the economy today. As CBO wrote, “Raising the minimum wage increases that demand, in CBO’s assessment, because the families that experience increases in income tend to raise their consumption more than the families that experience decreases in income tend to reduce their consumption. In the short term, that increase in demand raises the nation’s output and income slightly.”

This finding is consistent with other research. For example, a study released by economists at the Federal Reserve Bank of Chicago found that raising the minimum wage to $9 per hour would raise growth by 0.3 percentage point in the short run.

4. CBO found that only 12 percent of low-wage workers will be teenagers. Contrary to critics’ claims that teens are the primary beneficiaries of increases in the minimum wage, CBO, found only 12 percent of the workers likely to benefit from a minimum wage increase are teenagers.5. CBO also found that raising the minimum wage would lift 900,000 people out of poverty. Opponents claim raising the minimum wage won’t reduce poverty, but that is not the case, as many American who work full time are unable to make ends meet. This finding echoes the broad consensus of academic studies on the topic, which is nearly unanimous in finding that increases in the minimum wage reduce poverty.

6. CBO’s estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists. The bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent. CBO also agrees that the employment effect could be essentially zero, but their central estimates are not reflective of a consensus of the economics profession. Specifically

o Seven Nobel Prize Winners, eight former Presidents of the American Economic Association and over 600 other economists recently summarized the literature on the employment effects of the minimum wage in this way: “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”

o The pioneering research in this area was conducted by John Bates Clark Medal winner David Card and Alan Krueger, who published a study in the American Economic Review in 1994 finding that fast food restaurants in New Jersey did not cut back employment relative to Pennsylvania after the former State raised its minimum wage. They concluded, “We find no indication that the rise in the minimum wage reduced employment.”

o The Card-Krueger research was generalized by Arindrajit Dube, T. William Lester, and Michael Reich who compared 288 pairs of contiguous U.S. counties with minimum wage differentials from 1990 to 2006. Based on this, researchers found “no adverse employment effects” from a minimum wage increase.

o A recent literature review of the extensive published work on the minimum wage concluded: “[W]ith 64 studies containing approximately 1,500 estimates, we have reason to believe that if there is some adverse employment effect from minimum-wage raises, it must be of a small and policy-irrelevant magnitude.” We have plotted the CBO estimate and their confidence interval on this chart. It is clear that CBO’s beliefs are not centered around the profession’s estimates and are skewed toward finding a larger negative effect than is generally believed in the profession. Moreover researchers have noted that even this distribution of studies is biased toward negative findings because bad studies finding spurious, large positive effects of the minimum wage on employment are not published while such studies finding spuriously large negative effects are published.

o Another recent review of the theory and evidence on the minimum wage by John Schmitt at the Center for Economic Policy Research concluded that “The employment effects of the minimum wage are one of the most studied topics in all of economics. This report examines the most recent wave of this research – roughly since 2000 – to determine the best estimates of the impact of increases in the minimum wage on the employment prospects of low-wage workers. The weight of that evidence points to little or no employment response to modest increases in the minimum wage.”

Karen Rubin, Long Island Populist Examiner
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