Raising the Minimum Wage – Good or Bad?

The Congressional Budget Office (CBO) recently released a bipartisan study determining that a hike in the Federal Minimum Wage would cause approximately 500,000 workers to lose their jobs. This is timely, because raising the Federal Minimum Wage has recently been touted as a central issue by President Obama and the Democrat Establishment. It is pushed as a necessary “living wage” reform to improve the lives of low-wage workers.

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As the CBO’s study reports:

Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.

For this report, CBO examined the effects on employment and family income of two options for increasing the federal minimum wage (see the figure below):

  • A “$10.10 option” would increase the federal minimum wage from its current rate of $7.25 per hour to $10.10 per hour in three steps—in 2014, 2015, and 2016. After reaching $10.10 in 2016, the minimum wage would be adjusted annually for inflation as measured by the consumer price index.
  • A “$9.00 option” would raise the federal minimum wage from $7.25 per hour to $9.00 per hour in two steps—in 2015 and 2016. After reaching $9.00 in 2016, the minimum wage would not be subsequently adjusted for inflation.

What Effects Would Those Options Have?

The $10.10 option would have substantially larger effects on employment and income than the $9.00 option would—because more workers would see their wages rise; the change in their wages would be greater; and, CBO expects, employment would be more responsive to a minimum-wage increase that was larger and was subsequently adjusted for inflation. The net effect of either option on the federal budget would probably be small.

Effects of the $10.10 Option on Employment and Income

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds 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.

There is a litmus test to discover if a person understands economics. Try asking them this question: Will raising the Minimum Wage produce unemployment?

If the person in question says “Yes”, then bingo: You’re talking to someone who at least vaguely understands economics.

If the person in question says anything other than a firm “Yes”, then they probably do not understand economics. If they say, “Maybe…”, or “Under certain conditions, it might…” then they definitely do not understand economics. If they say “No, raising the Minimum Wage will not produce unemployment”, then you are speaking to a full-fledged economic idiot. Watch your back.

This report by the CBO is surprising, but not because it found that raising the Minimum Wage would cost jobs; that’s basic knowledge to anyone who understands economics (which, unfortunately, does not include most Americans). The report is surprising because the CBO actually went public with their findings. I am surprised that they did not dump this study down the memory hole.

The report from the CBO is already generating considerable buzz, both positive and negative. The office of Speaker John Boehner (R-Ohio) released this statement in praise of the study, as reported by CBS News:

“This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working. With unemployment Americans’ top concern, our focus should be creating – not destroying – jobs for those who need them most.”

I have very little use for Boehney, but he at least understands basic economics. His statement hits the nail on the head: The Minimum Wage helps some workers at the expense of other workers, harming specifically the most at-risk and unskilled, the very workers that the Minimum Wage is supposedly designed to help.

Meanwhile, the illustrious administration of Barack Obama has already fired back at the report as fallacious, charging that the study “does not reflect the consensus of economists who see no job losses.”

Problem: The Obama Administration does not have a consensus of economists. They only have a consensus of idiots who don’t understand economics. No economist would claim that they see no job losses in raising the Minimum Wage. Only an economic idiot would say that. Obama has a consensus of economic court jesters who are saying what he wants to hear.

The Democrat Establishment also took heavy exception to the report:

…Sen. Tom Harkin (D-Iowa), the lead sponsor of the Senate bill to raise the minimum wage, took issue with the CBO’s findings.

 “More than 600 economists, including seven Nobel Prize laureates, recently affirmed the growing consensus that low-wage workers benefit from modest increases in the minimum wage without negative consequences for the low-wage job market,” Harkin said.

 “In fact, an analysis of the Fair Minimum Wage Act reveals that gradually raising the minimum wage to $10.10 would raise the wages of nearly 28 million low-wage workers, pumping $22 billion in the economy and—contrary to the CBO’s report— would create 85,000 jobs over three years due to increased consumer demand.”

Like the White House, Senator Harkin doesn’t actually have any economists backing up his claim. He just has a bunch of buffoonish Yes-Men on his side. They may have economics degrees, but rest assured: these 600 “economists” and Nobel laureates do not understand economics (assuming they really did back up Harkin’s claim).

This perfectly illustrates Thome’s Rule of Government #4,382: “Never trust an economist who works for the Government.” The instant that a supposed economist begins working for the government is the instant that their job ceases to be “Provide sound and realistic economic analysis”, and instead becomes “Act as an apologist to justify all the stupid things the government wants to do.”

The last part of Harkin’s statement claims that raising the Minimum Wage will put more money in pockets, thereby fueling consumer demand and ultimately pushing the USA into recovery. “Gradually raising the minimum wage… would create 85,000 jobs over three years due to increased consumer demand.” This claim is the oldest trick in the Keynesian book, and the sorry part is that many people actually believe this garbage.

If what Senator Harkin says is indeed true, then why are we futzing around with Quantitaive Easing and corporate bailouts and all these other obscene measures to kickstart the economy, when all we need to do to goose up the economy is raise the Minimum Wage? Raising the Minimum Wage will, after all, magically “pump $22 billion into the economy” (Pump from where? This is utter nonsense). No else received the memo, apparently. Furthermore, if this is the case, then why is Senator Harkin stopping at $10.10 per hour? If we’re trying to fuel spending, then why not $15 per hour? Why not $20? If the Minimum Wage fuels demand and kickstarts a recovery in employment, then why not go big and push for a $100 Minimum Wage to get some REAL big spenders out there?

The fact that Senator Harkin is only pushing for a marginal increase in the Minimum Wage shows us that he actually DOES posses some fuzzy iota of economic understanding. Harkin knows, whether consciously or sub-consciously, that raising the Minimum Wage increases unemployment and disemploys workers at the margin. That is why he is stopping at $10.10; it is high enough to please a certain percentage of workers he feels comfortable with, but not high enough where he knows he will begin to alienate huge portions of the workforce by disemploying them.

It is a populist measure. Senator Harkin knows that raising the Minimum Wage will produce unemployment, but guess what: He doesn’t care. All he cares about is his next election. If pushing for a raise in the Minimum Wage will further his agenda, then doggone it, that’s what he’s gonna do. Vulnerable workers be damned!

We are surrounded by economic idiots. Myths like “The Minimum Wage does not cost jobs” seem to float around in perpetuity. If you ever hear a supposed “economist” make this claim, then know that this person is not an Economist; they’re just some schmuck who claims to be an Economist.

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