In a new report, the Congressional Budget Office estimates that raising the federal minimum wage from its current level of $7.25 an hour would raise the incomes of low-wage workers who remain employed while lowering the incomes of low-wage workers who lose their jobs. CBO’s “middle” estimate is that a $10.10 minimum wage would reduce total employment by about 500,000.
In the State of the Union address, President Obama endorsed a bill to raise the $7.25 federal minimum wage by nearly 40% over three years to $10.10 an hour in 2016. That would be an exact copy of what President Bush did on May 25, 2007, by signing into law a 40% minimum wage hike in three stages — from $5.15 to $5.85 on July 24, 2007, then $6.55 a year later and $7.25 on July 24, 2009. Have we not learned anything from what happened last time?
When President Obama advocates a higher minimum wage in his State of the Union Address, he will no doubt argue that by increasing the minimum to $10.10, workers will have fatter pay checks and spend more, thus stimulating the economy and creating more jobs. In fact, economic logic tells a different story.
Seventy-five economists, including seven Nobel winners, have signed a letter advocating an increase in the minimum wage. The letter was preceded by a New York Times editorial on January 2 making the same argument. I assume that there will be an opposing letter shortly, probably also including some Nobel signers.
I was surprised to read this assertion about the minimum wage by labor analyst Harry Holzer in the Washington Post today:
The Reason Foundation’s Adam Millsap and Anthony Randazzo have an op-ed up at RealClearPolicy.com that cites examples of how federal job training programs are used to favor particular commercial interests.
It’s that time again; time for supporters of trade liberalisation to question the value of enhanced training and welfare programs for those who lose their jobs because of import competition, and for trade-skeptics to ask why we need trade liberalization at all.
Recent protests by fast food workers have renewed interest in the minimum wage. Often, these protests focus on the inability of an individual worker to support a family on the minimum wage. Such a question spurred McDonald’s to release a mock budget for low wage workers. McDonald’s first mistake, however, was in accepting the premise of the question.
Economic research has only a tenuous relationship to economic policymaking in Washington. President Obama’s new proposal to raise the federal minimum wage from $7.25 to $9.00 is a case in point. It would bad for workers and the economy, but the administration seems to be ignoring the large body of theory and evidence on the issue.
The Washington Times noted this week that the 2012 improper payment rate for unemployment insurance benefits was 11.4 percent ($10.3 billion out of $90.2 billion), according to U.S. Department of Labor data. The good news is that the figure is down from 12 percent in 2011. The bad news is that it’s still a pathetic waste of money.