The Pulse

A big picture view of the CBO’s minimum wage report

By: - February 21, 2014 2:28 pm

raise the wageThis week’s release of the Congressional Budget Office (CBO) report on the minimum wage has generated a good amount of discussion about the potential impacts of a minimum-wage hike. Not immediately apparent from these discussions – as this CEPR post points out – is the fact that, on the whole, the report shows that on almost every issue, the report sides with supporters of an increase.

–          Raising the minimum wage would benefit many American families. The CBO estimates that about 16.5 million workers would receive a wage increase, and that about 8 million additional workers would be indirectly impacted as employers adjust internal pay scales. These numbers are consistent with EPI’s estimate in this report, which also breaks down the impact by state (about 735,000 NC workers would be directly affected and over 1 million would see a raise).

–          Most minimum wage workers are older than you think. The CBO concludes that only 12 percent of low-wage workers who would receive a wage increase are teenagers. Proponents of minimum wage hikes have long worked to dispel the myth that the majority of minimum-wage workers are suburban teenagers working for spending money. In fact, close to a third of America’s minimum wage workers are over 40 and in North Carolina, 82 percent are 20 or older.

–          The minimum wage can act as a stimulus to the broader economy. The CBO report acknowledges that low-income earners tend to spend a larger proportion of their earnings than the average consumer, thus providing a stimulus effect. Our report citing EPI data shows that the estimated GDP impact on North Carolina of a minimum wage increase to $10.10 would be approximately $1.3 billion.

Here’s the controversial piece: the CBO estimates that increasing the minimum wage to $10.10 could cost 500,000 jobs or 0.3 percent of total employment. When evaluating this statement, it’s important to keep in mind methodology, as Center on Budget and Policy Priorities Senior Fellow Jared Bernstein points out here and as EPI Economist Heidi Shierholz writes:

It’s important to note that the economists at CBO didn’t do their own analysis on the employment impact of increasing the minimum wage—they looked at the academic literature on this subject and arrived at a conclusion about what it showed. In other words, they used exactly the same information that the more than 600 economist who signed a letter in support of increasing the minimum wage to $10.10 were looking at when they concluded that increasing the minimum wage will raise the wages of low-wage workers with little or no negative effect on employment.

CBO acknowledged that the methods of more recent studies, particularly studies of state-by-state difference that address the fact that changes in state minimum wages can be correlated with local economic conditions in ways that can bias results, “have estimated more accurately the effects of minimum wages on employment.” These are the studies that show that increases in the minimum wage have caused little or no job loss. Nevertheless, they still gave consideration to older methodologies, which show significant negative effects. By doing so, they ultimately picked an estimate that is more negative than the current consensus.

And here are some more points for us to consider here in North Carolina, where income inequality has been widening. The ratio of the income held by the top 1 percent has reached levels not seen since 1928. It’s clear that our economy isn’t working for everyone. Policies like raising the minimum wage would provide hard-working Americans the opportunity to get ahead, while giving the economy a much needed kick-start.

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