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CBO report fuels debate on costs and benefits of boosting the minimum wage

February 19, 2014 at 6:09 PM EST
Amid dialogue over how to reverse income inequality, both political parties are seizing on a report by the Congressional Budget Office that claims that raising the minimum wage could lift 900,000 families out of poverty, while possibly eliminating half-a-million jobs. Judy Woodruff talks to Thea Lee of the AFL-CIO and David Neumark of University of California, Irvine for opposing takeaways on the report.
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JUDY WOODRUFF: The Congressional Budget Office, by definition, is considered a nonpartisan agency. But the report it released yesterday about the effects of raising the minimum wage was seized upon by both sides of the debate.

Among its findings: If the minimum wage were raised to $10.10 an hour, it could eliminate half-a-million jobs, but it would also lift 900,000 families out of poverty and raise incomes for more than 16 million people. The report noted there could be significant variation in the numbers.

We join the debate with Thea Lee. She’s the deputy chief of staff at the AFL-CIO. And David Neumark is an economist at the University of California, Irvine. He’s done extensive work on this subject.

And we welcome you both to the program.

Thea Lee, to you first. What is your main takeaway here, that, on the one hand, the Congressional Budget Office is saying, yes, it lifts people out of poverty, it will raise incomes, but it has the potential to eliminate half-a-million jobs?

THEA LEE, AFL-CIO: Well, there were some good findings out of the CBO study, as you said, 16.5 million getting a pay increase which is long overdue and about 900,000 coming out of poverty.

The most controversial finding in the CBO study was that up to half-a-million people could lose their jobs because of hike in the minimum wage. But if you look carefully at the CBO study, they haven’t actually done new research. And I think it was a little bit biased, in the sense that they gave a lot more weight to studies that might have a negative employment impact and less weight to a vast consensus among economists right now that, in fact, raising the minimum wage will have little or no adverse job impact.

And I think those studies have been more of the newer studies, more careful studies that have been done. And that is where a lot of the economics profession is right now.

JUDY WOODRUFF: Professor Neumark, what is your takeaway on what the CBO said, and how do you respond to what Thea Lee just said, that it really didn’t take into account the consensus of economists, she said, that there won’t be this effect on jobs?

DAVID NEUMARK, University of California, Irvine: Well, let me take the first question in reverse — let me take the questions in reverse order.

It’s simply a misstatement of the research evidence to say that most studies point to no effects of minimum wages on unemployment, to say that there is a consensus among economists now. I don’t know where that comes from. There is — you know, there is a survey — I did an extensive survey of minimum wage studies back in 2007 with co-author William Wascher at the Federal Reserve Board.

We found that while there is definitely a dispute here, most of the evidence, two-thirds of studies, and a higher percentage of the studies we think are better, point to negative minimum wage effects. There are a few recent studies that find the opposite. That is not new. There have always been a few studies that find to the contrary.

There has been a rather concert effort by I would say the authors of those studies, as well as some people very in favor of raising the minimum wage, to make it seem as if that’s what we know now and that is the consensus. But that’s simply not the weight of the evidence.

I really welcome the CBO study, because I think what it does is, it puts the discussion back where it should be. There are costs to raising the minimum wage. There are some benefits to raising the minimum wage. We should be having an informed policy discussion about what those costs and benefits are and how we trade them off against each other.

The discussion argues as if there is no cost, no disemployment effects to the minimum wage, obviously, if there are no costs, it’s all benefits, you might as well do it, and you might as well you keep doing it higher and higher.

I think the CBO study puts us back where we need to be, saying there is some job loss. And let’s think about that cost relative to the benefits.

JUDY WOODRUFF: Thea Lee, without pitting studies against studies, how do you respond to the point that the professor just made that it is important to acknowledge that, yes, there may be some benefits, but there are also some tradeoffs?

THEA LEE: Well, even in the CBO study, even if you take the CBO study at face value, it talks about a $31 billion increase in income for low-wage workers.

And these are folks who have been working hard, people who are playing by the rules, who are productive, who are going to work every day, and who can’t lift their families out of poverty. So I think this study goes to something which is very important. This is the hot topic right now. The minimum wage, raising the minimum wage is incredibly popular.

It would be good for the economy. And in fact it’s good for a lot of businesses. And we’re starting to see that even businesses, businesses like Costco — or The Gap just announced today that it is going to voluntarily raise wages for its workers — have found that some of the benefits of a higher minimum wage, that there is higher productivity, there is lower turnover, lower absenteeism, workers are healthier, they’re happier, they stay in the job longer.

Those are all really important offsetting impacts that need to be taken into account. And that’s why I think the new economic research, which isn’t about theories, it’s not about drawing a supply and demand curve on a blackboard, but it is about looking at historical, real-life situations, where you have two states or two counties that are next door to each other, and one raises the minimum wage and one doesn’t.

And in those very carefully controlled studies, you do not find that there is a negative job impact from raising the minimum wage.

JUDY WOODRUFF: Well, David Neumark, you can respond to that. But even setting that aside, what about the positive that the CBO found, that poverty would be reduced, that millions of people would end up with higher income, the point that Ms. Lee just made, that people would have more disposable income?

DAVID NEUMARK: Right, so very briefly, the studies I was referring to are not theory. They are studies of imperial empirical evidence.

So, again, we can talk about the research and argue what is good and bad, but let’s not just mischaracterize the research record. Why are we having this debate in the first place?  We’re having this debate in the first place because inequality has widened a lot and because many people feel — and I rank myself among them — that in a country as rich as ours, the minimally acceptable standard of living at the bottom should probably be higher than it is.

So that’s the goal. How do we raise incomes of low-income families? The question is, what is the best way to do it?  The minimum wage is generally viewed as not a very good way to achieve that goal, for one simple reason. Minimum wages don’t target poor and low-income families very well.

Many, many families that are poor have no workers, OK? So the minimum wage presumably does little or nothing for them. And many minimum wage workers are non-poor families. We have an Earned Income Tax Credit. Perhaps it should be more generous than it is. The Earned Income Tax Credit essentially adds on to your labor market earnings if you are in a low-income family.

And it adds on more if you have children to give those families more help. Now, some people don’t like that for reasons we don’t have time to get into here. But I don’t think anyone disagrees, people on both sides of the debate, that that is a much better and more effective and more efficient way to put money in the hands of low-income families.

So when the CBO says…

JUDY WOODRUFF: I was just going to say I want to give — we only have a little bit of time left.

Thea Lee, what about this, that — the point he’s making, which has been made elsewhere, that there are better ways to get money into the hands of those who most need it?

THEA LEE: I don’t think we need to choose between the Earned Income Tax Credit, which is a good program, and raising the minimum wage. The truth is that if you are working for a living, you shouldn’t be in poverty.

And I think what we need to do is give not just low-wage workers, not just poor workers, but middle-income workers, a raise as well, because the key factor in our economy today is that millions and millions of workers have been working harder, they’re more productive, they’re more educated than they have ever been. And they haven’t had a raise in decades.

So, I think raising the minimum wage is one important way of lifting up the floor for all of those workers. And I think it should be a top priority for the Congress and for the country.

JUDY WOODRUFF: Professor Neumark, just a brief response.

DAVID NEUMARK: Well, I think that is — you know, that’s a sentiment. We wish low-income people would earn more.

But it’s not as simple as that. If we could just wave our wand and they would earn higher wages, I would go — I would say that sounds like a great policy. But there are tradeoffs. And this CBO study puts us back to seriously considering those tradeoffs.

JUDY WOODRUFF: Professor David Neumark, Thea Lee, we thank you both. It is a tough debate. We will continue to look at it. Thank you.

THEA LEE: Thank you.

DAVID NEUMARK: Thank you.