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Wednesday, February 19, 2014 12:27 PM


CBO Report Says Minimum-Wage Hike Will Cost 500,000+ Jobs; Common Sense vs. Research Papers


A new CBO study shows ObamaCare Magnifies Minimum-Wage Job Losses.

The Congressional Budget Office weighed in on President Obama's proposed $10.10-an-hour minimum wage, saying it could lead to job losses that range from "very slight" to "1 million."

But in a footnote, the nonpartisan number cruncher explained that near-term job loss may be higher because its analysis didn't factor in the new ObamaCare costs imposed on employers.

"At the same time that the proposed increases in the minimum wage would take effect, the Affordable Care Act's requirement that many employers provide health insurance (or pay a penalty if they do not) will impose an additional cost on employers for some low-wage workers who do not currently have employment-based health insurance," the CBO said.



Over time, the CBO expects that the cost of complying with ObamaCare's employer mandate "will ultimately be borne by (low-wage) workers through lower wages."

Analysts on the left lashed out at the CBO for its analysis that "flies in the face of overwhelming empirical evidence," according to Christine Owens of the National Employment Law Project.

Yet there has been little study of minimum-wage hikes of the scale proposed (39% from the current $7.25 an hour).

Proponents of a large minimum-wage hike also have ignored its potential interaction with ObamaCare's employer mandate, which the CBO suggested may result in a bigger near-term job loss than a wage hike by itself.
Loss of 500,000 Jobs

Let's go straight to the CBO Report on Minimum Wages to get some numbers.
Effects of the $10.10 Option on Employment and Income. Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects. As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers



According to CBO’s central estimate, implementing the $10.10 option would reduce employment by roughly 500,000 workers in the second half of 2016, relative to what would happen under current law. 10 That decrease would be the net result of two effects: a slightly larger decrease in jobs for low-wage workers (because of their higher cost) and an increase of a few tens of thousands of jobs for other workers (because of greater demand for goods and services).

By CBO’s estimate, about 1½ per- cent of the 33 million workers who otherwise would have earned less than $11.50 per hour would be jobless— either because they lost a job or because they could not find a job—as a result of the increase in the minimum wage. Those job losses among low-wage workers would be concentrated among people who are projected to earn less than $10.10 an hour under current law. Some workers who would otherwise have earned between $10.10 and $11.50 per hour would also see an increase in their wages, which would tend to reduce their employment as well, CBO estimates.
Politically Speaking

The Hill chimed in on the issue in its report Minimum wage hike to cost 500K jobs, boost income
President Obama’s proposal to raise the minimum wage to $10.10 per hour would cost 500,000 jobs in 2016, according to a report released Tuesday by the nonpartisan Congressional Budget Office.

The report also found hiking the wage from $7.25 per hour would raise income for about 16.5 million workers by $31 billion, potentially pulling nearly 1 million people out of poverty.

The White House and economic groups on the left immediately pushed back at the CBO’s conclusions on jobs even as they hailed the findings on poverty, saying its conclusions on jobs ran counter to other research.

Democrats are hoping to make the minimum wage a top issue in the 2014 midterms if the GOP blocks passage of a bill, but the CBO report would bolster Republican arguments for stopping a wage hike.

The office of Speaker John Boehner (R-Ohio) was quick to seize on the CBO finding, arguing it shows Republicans are right that the proposal would hurt the economy.

“This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working. With unemployment Americans’ top concern, our focus should be creating — not destroying — jobs for those who need them most,” said spokesman Brendan Buck.

The minimum wage findings are the second time in weeks the CBO has stirred up controversy on a high-profile issue.

Earlier this month, the CBO found that over the next decade, ObamaCare would result in the equivalent of 2.5 million fewer workers. It concluded many workers would chose to remain at home due to ObamaCare’s expansion of health coverage.
Common Sense vs. Research Papers

Proponents of higher minimum wage laws cite studies that purportedly show hiking the minimum wage does not cost jobs.

For example, Barry Ritholtz recently linked to a couple of Minimum Wage: Research Papers that purportedly show higher minimum wages have no effect on hiring.

Such reports defy simple economic realities and common sense.

Although small differences in local minimum wages may not have much of an effect, I wonder if the studies properly take into account property tax differentials, local tax incentives, and the simple fact that wages generally rise over time regardless of minimum wage hikes.

Regardless, such studies cannot show the unseen: what would have happened in the absence of wage hikes.

Finally, the proposed minimum wage hike from $7.25 to $10.10 is a massive 39.3% increase. And that would come on top of Obamacare penalties.

It is beyond absurd to seriously propose that such whopping increases would not impede hiring. Only economic illiterates and political charlatans can make such statements.

Economic Reality

If owners of stores have to pay more for workers, they have less incentive to expand.

Here's the critical question: How many stores will Walmart, Pizza Hut, McDonalds, Wendy's etc., not open that they would have otherwise if the minimum wage rockets up to $10.10?

Common sense says it's a substantial number. It has to be. Stores that are marginal at one labor price point will be outright unprofitable at another labor price point. That is simple economic reality.

No unflawed study can possibly show otherwise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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