CBO Data Could Spur Minimum Wage Hike to $9

CBO Data Could Spur Minimum Wage Hike to $9
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If Congress decides $10.10 an hour is too steep a climb from the existing $7.25 federal minimum wage, might policymakers shake hands on an increase closer to $9 an hour?

As the Congressional Budget Office and the White House continued to disagree Wednesday over the uncertainties and potential labor-market downsides of President Obama’s $10.10 proposal, their dispute -- in its fine print -- was about how much the minimum wage could rise before its evident benefits would erode.

From that sort of argument in Washington, minimum wage compromises have sprung in the past -- 22 times since 1938.

Republicans are worried that a $2.85 jump would “kill” jobs, and many Democrats’ are resolute that it would have a negligible impact on most employers’ hiring decisions. Americans across parties favor action by Congress to raise the minimum wage, even if they aren’t unanimous about the optimal floor.

Faced with a popular policy concept in a midterm election year, candidates may agree on the concept and fight over degree. CBO Director Doug Elmendorf, while defending analyses the West Wing faulted this week, pointed toward a middle ground, at least in the economic research.

“We estimate that raising the minimum wage to $10.10 would have a much larger effect on employment -- but still, I think, a small effect … than the effect of raising the minimum wage to $9,” he told reporters at a breakfast Wednesday sponsored by the Christian Science Monitor.

CBO examined both, and found that 16.5 million people would gain higher wages if the administration’s proposal were adopted by Congress, while a $9 minimum wage would benefit 7.5 million people. But the tradeoff, Elmendorf said, would be “a larger percentage reduction in employment.”

Expert economists outside of Washington also disagree when asked about the projected impact of a $9 minimum, Elmendorf pointed out. But some findings have been rhetorically described as either small or significant when it comes to lost jobs, leaving room within the data for varied interpretations.

“If you try to compare our analysis to what other economists have said, it's a little hard because most other economists don't have to put numbers behind the words of their evaluations,” Elmendorf said Wednesday.

Congress asked the CBO, which is nonpartisan, to evaluate minimum wage proposals, he said, and it complied after “an exhaustive review of the literature” available through January.

“We're focused on trying to find the best possible estimate so that Congress has the best information to work with,” he added. “Our analysis of the effects of an increase in the minimum is completely consistent with the latest thinking in the economics profession.”

A smiling Elmendorf, who holds degrees from Princeton and Harvard universities, said he’d been walking his dog when White House National Economic Adviser Gene Sperling appeared on MSNBC Wednesday to assert that CBO’s “mistake was not looking at the practical research that was done” by economists working in the field.

Sperling, who is not an economist, touted Obama’s $10.10 proposal by suggesting that CBO missed evidence that workers’ behavioral improvements would return dividends to employers -- effects found in independent research that he said was more nuanced and sophisticated than what he called “Economics 101.”

Sperling, who plans to depart the White House on March 5, worked with Elmendorf when they both served in the Clinton administration and when the two men held posts at the Brookings Institution during the Bush administration.

Despite all the discord over data, CBO’s companion analysis of a $9 minimum wage this week could prove helpful to advocates who want to see the $7.25 floor float upward. Twenty-one states and the District of Columbia already exceed $7.25, with no disastrous economic effects. Climbing closer to $9 rather than $10 at the federal level could find a bipartisan constituency, particularly if unemployment continues its downward trend and the growth rate remains positive.

Just a year ago, Obama told Congress during his State of the Union address that American workers deserved a $9 federal minimum wage that was indexed to rise with inflation.

“This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank, rent or eviction, scraping by or finally getting ahead,” the president said in 2013. “For businesses across the country, it would mean customers with more money in their pockets. And a whole lot of folks out there would probably need less help from government.”

CBO examined a $9 per hour minimum wage (which would not be indexed for inflation) and found that the decline in employment would be just 100,000 workers into the second half of 2016 -- a slight impact nationwide -- and smaller than its estimates for a $10.10 wage because fewer workers would be affected at that level; the wage change itself would not be as steep; and employers would have fewer incentives for a variety of reasons to shed workers.

While giving the West Wing some heartburn, CBO -- accompanied by scads of independent economic research -- helped establish a case for the basic policy Obama sought 13 months ago (although the president also sought indexing, which would be an automatic adjustment Congress has no history of granting).

Asked Wednesday if CBO uncovered a policy sweet spot between $7.25 and $9 where the impact on employment would effectively be zero (which is what the White House argues for $10.10), Elmendorf responded that there was “no particular trick.”

“The vast majority of people … would keep their jobs and receive higher wages” with a hike from $7.25, he said. “I think as you move to larger and larger increases in the minimum wage, from zero up to -- going to $9 or $10.10, or beyond that -- you're likely to find progressively larger numbers of people who benefit from raising wages and progressively larger reductions in employment.”

In econ-speak, CBO said lawmakers of all political stripes could be more generous than $7.25 an hour, perhaps not as generous as $10.10, and at the same time boost Americans’ wages without costing a lot of jobs. In an election year, it might be the definition of smart policy.

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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