Wage Hike Job-Loss Estimates Irk White House

Wage Hike Job-Loss Estimates Irk White House
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In economic circles, the difference between zero lost jobs and 1 million lost jobs -- in an economy with 137 million of them -- might amount to a polite difference of opinion among academics.

But when a whiff of lower employment Tuesday attached a foul odor to a possible hike in the federal minimum wage, a new political skirmish in Washington was born.

President Obama’s drive to raise the minimum wage to $10.10 an hour is central to his goal this year of narrowing income inequality -- and giving Democrats a fresh refrain in the midterm election campaign. But a few pages in an otherwise supportive Congressional Budget Office report scuffed that message.

“Our review is that zero is a perfectly reasonable estimate of the impact of the minimum wage on employment,” Jason Furman, chair of the White House Council of Economic Advisers, told reporters while challenging CBO’s projection that the number of job losses could begin with the number 5, with five zeroes tacked on.

“Sometimes you have to have respectful disagreement between economists,” he said, adding, “I don’t think this is the CEA vs. CBO.”

Nonetheless, Furman pointed to CEA’s own analysis of the minimum wage, which he said combed through “dozens and dozens” of leading academic studies before finding “no discernible” impact on job losses resulting from a wage hike to $10.10. The White House favors the view that higher pay improves motivation, curbs distractions, improves retention, reduces turnover and cuts absenteeism among workers. All of that benefits employers and can offset higher labor costs. Employers also have the option of reducing profits while maintaining or increasing employment levels, Furman added.

Back in 2006, when a prolonged debate was underway leading to the current $7.25 minimum wage, CBO told Congress it expected few jobs to be lost. It opted to sidestep any firm job-loss figures, acknowledging that among economists there was “considerable disagreement about the magnitude” of employment reductions.

On Tuesday, Republicans pounced on CBO’s analysis of what would happen if low-wage workers earned another $2.85 per hour. The GOP insisted the opposing party would “destroy” employment opportunities if Congress and the White House enacted a higher minimum wage for the first time since 2009.

 “If and when Democrats try to push this irresponsible proposal, they should be prepared to explain why up to a million Americans should be kept from having a job -- beyond the work already lost due to Obamacare,” Senate Minority Leader Mitch McConnell said in a statement.

CBO -- officially the nation’s trusted green eyeshade when it comes to measuring legislation’s impact on the federal budget and the economy -- supported the administration’s economic assertions that raising the minimum wage would lift incomes, boost growth, and reduce poverty.

But the 39-page report caught the White House by surprise. It said such legislation could reduce employment slightly -- or perhaps more considerably (by up to 1 million jobs). CBO tried to settle its own computational quandary in the middle, by saying a hike to $10.10 an hour would reduce employment by “roughly 500,000 workers in the second half of 2016.”

Yet, the Capitol Hill analysts also indicated how uncertain economic forecasting can be: “The overall reduction in employment could be smaller or larger than CBO’s central estimate,” they wrote.

Ignoring equivocation, GOP tweets, emails and talking points gleefully pointed up CBO’s 500,000-to-1-million computation as evidence that Obama and Democrats are headed down the wrong path. A majority of Americans favor raising the minimum wage, according to recent polls, but Democrats support lifting it above $10 an hour, while Republicans say they are more comfortable with a wage under $9 an hour.

As of late January, 21 states and the District of Columbia had minimum hourly wages higher than $7.25.

Liberal-leaning advocacy groups joined Democrats on Tuesday in zapping the CBO for being what they said was an outlier among the leading labor-force research. Americans United for Change, for instance, accused the powerful CBO of orbiting in “outer space.”

More recently, CBO was under fire among progressives for a budget update that said the Affordable Care Act, with all its benefits, might encourage millions of people to exit the workforce voluntarily, perhaps to work part time, retire earlier, launch businesses, or stay home to raise families.

At the White House, the president’s economists pointed out that CBO had not conducted “original research,” and they suggested the budget office’s economists might be unfamiliar with what Furman and his CEA colleague Betsey Stevenson said was persuasive research about the minimum wage.

Suggesting that Congress’s career economists might be in the dark about relevant research was something of a slap, particularly in light of how frequently CBO has analyzed proposed minimum wage legislation over the years.

“I suspect that they are not fully appreciating how the literature has moved in terms of understanding the cost savings you get from reduced turnover when you raise the wages for lower-wage workers, from reduced absenteeism, and from increased productivity,” said Stevenson, a University of Michigan economist.

“That understanding in the literature is one of the things that have moved the profession toward believing the employment effects are zero, and I think CBO didn’t fully appreciate that in their review,” she added.

Alexis Simendinger covers the White House for RealClearPolitics. She can be reached at asimendinger@realclearpolitics.com.  Follow her on Twitter @ASimendinger.

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