Wednesday, February 26, 2014

News Headlines and the CBO Report on the Minimum Wage

Two weeks ago the CBO released their report analyzing the effects of raising the federal minimum wage to either $9.00 per hour or $10.10 per hour (you can read the report here). In short the results were mixed. Looking specifically at the increase to $10.10 per hour they found job losses to be approximately 500,000 (or about 0.3% of our total level of employment) with a 2/3 probability job loss will lie between slight decrease to a decrease of one million. On the flip side they found incomes for families below the poverty threshold would increase by $5 billion. Incomes would increase by $12 billion for family with income from one to three times the poverty threshold and another $2 billion for families with income four to six times the poverty threshold. Incomes will decline by $17 billion for families with income greater than six times the poverty threshold (you can see the poverty threshold here).  On the net real income in the economy would increase by $2 billion (or 0.022% of total wage income).  In regards to the increase to $9 per hour the net effects would be 100,000 jobs lost and a net increase of $1 billion in real income.

So the conclusion is not much of a conclusion. Increasing the minimum wage involves a tradeoff (a small one at that) do we sacrifice 500,000 jobs for a net increase of $2 billion in real income? Is it better to have more jobs or fewer, better paying jobs? Either way this provides further evidence that an increase in the minimum wage is not the answer to combat the rising levels of income inequality. The benefits of a higher minimum wages are far lower than those touted by liberals. But the costs are also significantly lower than those proclaimed by conservatives. Of course, neither party wants to admit that they are exaggerating the truth.

I did a google search on the phrase: CBO report on higher minimum wages, and was interested to see the message espoused by news organization. Here are screen shots of the headlines in order of conservative, liberal, and neutral:

Conservative commentary (I focused on articles that emphasized the negatives, i.e. job losses)

Liberal Commentary (I focused mainly on articles that emphasized the positives, i.e. income growth)

Neutral Commentary 

Most mainstream new organizations reported relatively neutral headlines. I did not read each and every article and cannot comment on the content within each article. For the most part Fox News (perhaps most surprising), NY Times, CNN, WSJ, Washington Post, PBS, and Al Jazeera used neutral headlines. Whereas CNBC, FoxBusiness, Christian Science Monitor, News Max, NY Daily, Washington Times, The Hill, and Barrons lead with more conservative leaning headlines. Those with more liberal headlines were Huffington Post, Fiscal Times, NPR, and Politico.


  1. Raising the minimum wage is always a touchy subject. The trick is to find the perfect point where wage hikes do not affect the operations of a small business. For example, in Seattle, there is a new law stating that all businesses within the city must pay their employees a minimum of $15 per hour in the next seven years. This has already been shown to close down more restaurants than normal because of their operating margins and the nature of the industry. I do not believe that raising the minimum wage so drastically can have a positive economic impact in the long run. Some jobs will be eliminated as small businesses struggle to pay their employees after such a drastic shift in law.

  2. Simply raising the minimum wage and assessing numbers of jobs lost compared to household income gained ignores one of the key drivers for the push for the increase in the first place – skyrocketing housing costs. There are no counties in the state of Washington where a single worker working full time (35 hours or more) at minimum wage will bring a household’s income to a level high enough to make the fair market rents in that county “affordable” (housing costs being not more than 30% of household income). Unless we address housing costs appropriately (providing simple decent housing at a rate that would be commensurate with 30% of the wages of a full-time worker at minimum wage), we’re just going to raise the floor of the poverty level as business owners pass on the increased cost of doing business to consumers.

  3. The main problem I see with raising minimum wage is the effects it would have on inflation. Raising the minimum would temporarily boost the economy because it would boost spending. However, putting more money into the market would decrease the value of a dollar. I think the minimum wage in Seattle (and soon, Tacoma) is way too high ($15). I think it should be capped at $10. $10 would be enough of a raise to account for current inflation, without driving us into further inflation and deficit. The other problem with raising the minimum wage that high is the job loss it creates. Small business will not be able to sustain the wage of employees, and many people would be out of a job. At this point, the job demand would greatly exceed the job supply. Unemployment rate would skyrocket, and then we have that problem to deal with. The main solutions i see to that problem is to either enact a population control law to reduce the number of people in the labor force, or not raising minimum wage higher than $10. There should be more jobs rather than a few, high paid jobs.