Gregory Paul: "Congressional Budget Office Error"



The Congressional Budget Office has released a report on the estimated consequences of hiking the national minimum wage to over 10 bucks and hour. They figure that it will elevate almost a million out of poverty, and improve the finances of over 15 million more, but will cost half a million jobs, give or take a half million or so.

It seems like a win-lose proposition. Raising the MW will improve the status of those who have low wage jobs, while making it harder to get jobs at the bottom rungs of the economic ladder. It’s an either or thing, in which the calculations both ways are of equivalent quality.

But they are not. The estimates of how boosting the MW will improve the finances of those with such jobs are entirely solid. It is merely a straightforward matter of running the numbers concerning those with low-end employment. It can hardly be significantly wrong.

But the calculations of job loses are guesstimates, based on unproven and controversial theories. A large body of economists are of the opinion that increasing the MW does not result in job losses. Some even think it can increase the availability of work. The idea is that increasing the income of people who are hard pressed to spend what they have to keep afloat in rent, food, transportation, communications, medicine and a little entertainment acts as a trickle up stimulus. It is like when Henry Ford doubled the wages of his assembly line employees to stabilize the work force. (Doing exactly the same action again and again and again and again each day six days a week was so mentally and physically lousy that massive costs were incurred from bored workers bolting the lines. Offering the then amazing 5 smackers a day kept the workers working, actually reducing
costs and disruption of the factory lines.) Without intending to, Ford’s wage hike acted as a stimulus that further increased sales of the Model T.

The CBO is saying that the unusually dramatic increase of the proposed boost is the problem. But this remains a theory -- maybe the large jump will have an exceptionally powerful stimulative effect, like Ford’s megawage boost. Maybe it will cost jobs in the short term, but boost jobs overall over the longer term. No one knows.

What the CBO should have said is that while it is straightforward to figure out the benefits of a large national MW elevation, it is not possible to reliably estimate the impact on job availability.

So it is clear that giving millions of MW workers a raise will markedly improve their situations. We do not know for sure what will happen to job accessibility, but it is not likely to be adverse, and may be positive. One can propose a more gradual elevation of the MW, perhaps over 3 years; might be advisable to try to avoid disrupting the labor force. Or maybe the quick rise would help jump boost the economy.

While on the subject, some who object to raising the MW to over $10 rhetorically ask why stop there if such increases are a good idea; why not $100 an hour, or $1000? That’s flippant. The aim of the MW is not to make all wealthy which is not possible. It should be to ensure that all who have a full time job are not living at or below poverty, and need to turn to the taxpayers for aid to meet basic needs. Many businesses have gotten into the bad habit of subsidizing their operations by counting on the government to make up for the low wages they offer. In these days of stagnation of wages, low upward mobility and rising income disparity, with increasing numbers of adults reliant on MW jobs, it is critical to ensure all full timers get a basic living wage.

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© 2013 Economic & Social Justice Reality Report | Views expressed by contributors do not necessarily reflect the views of the Editor, Editorial Board, ESJRR, or WPRR.
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