Minimum Wage Raise; CBO Predicts Winners & Losers

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**Dreadclaw69**

http://money.cnn.com/2014/02/18/news/economy/minimum-wage-cbo/

Supporters of raising the federal minimum wage to $10.10 an hour say it will increase productivity, lower turnover and increase wages for 28 million workers.
Critics contend that a higher minimum will hurt jobs and consumers.

A new analysis from the nonpartisan Congressional Budget Office indicates that both sides have a point.
The key takeaways from the CBO report: Gradually raising the federal minimum wage to $10.10 from $7.25 would boost the incomes of most low-wage workers and lift 900,000 out of poverty. But it could also result in the loss of 500,000 jobs.

Is 500,000 workers a lot? On the one hand that's half a million people who will be hurt by a loss of income. But on a more macro level, the CBO said it represents only a 0.3% decrease in employment.
Why could there be job loss? A mix of reasons. A higher minimum wage raises payroll costs for an employer. That employer may handle those higher costs in any of several ways: cut jobs, reduce worker hours, curb summer hiring, opt not to replace workers who leave; book lower profits; or raise prices on customers.

Given the uncertainty of estimates, however, the CBO said there is a good chance the job loss resulting from a higher minimum could be much less than 500,000 -- or could go as high as 1 million jobs.

White House economists said they think the effect could be close to zero job loss since businesses' higher payroll costs could be offset by lower turnover and higher productivity.

In any case, the move would boost wages for most low-wage workers, according to the CBO. Its report estimates about 16.5 million workers who make less than $10.10 an hour would see higher earnings once the higher minimum is fully implemented in 2016, which Democrats in the House and Senate have been calling for.

In addition, the CBO said, some workers earning between $10.10 and $11.50 an hour could also see a raise in what's known as a "ripple effect."

And because of the stimulative boost to demand that a higher wage may bring, some workers across the income scale may benefit. The more low-wage workers make, the more they'll have to spend, and the better that will be for businesses selling products and services.

The CBO report also analyzed a proposal to raise the minimum wage to $9 per hour. Its effects would be less pronounced, with an estimated loss of 100,000 jobs and wage increases for an estimated 7.6 million lower wage workers.

Last week, in an effort to encourage lawmakers to raise the federal minimum, President Obama signed an executive order requiring businesses that get new or renewed federal contracts to pay their minimum wage workers $10.10 an hour starting in 2015. The order is expected to raise wages for a few hundred thousand people.

Once the CBO report came out, there was a partisan rapid-fire response at the ready. Republicans who oppose the $10.10 proposal immediately seized on CBO's job loss estimates, while Democrats touted the agency's assessment that a higher minimum would lift 900,000 workers out of poverty. To top of page

So it looks like an increase in the minimum wage would result in;
- 900,000 being assisted out of poverty
- 500,000 job losses

I don't see where this 28 million figure is coming from sadly.

**djones520**

-500,000 job losses.

**Cheesecat**

djones520 wrote:
-500,000 job losses.

Why?

**Dreadclaw69**

Sorry about the incorrect figure, I have updated the OP

**djones520**

Cheesecat wrote:
djones520 wrote:
-500,000 job losses.

Why?

Cause that is what the story said.

**DarkTraveler777**

Dreadclaw69 wrote:

I don't see where this 28 million figure is coming from sadly.

It read to me that the 28 million figure is referring to those workers who would gain in wages with a $10.10 minimum wage increase; i.e. anyone making under $10.10 currently. Which makes me wonder about those 900K who would be pulled out of poverty. Are those just folks living in states with a high cost of living but still making the low Federal minimum wage?

Then again, everything I posted above may just be wrong since math makes my brain freeze up and turn on the derp.

**Dreadclaw69**

Cheesecat wrote:
Why?

As djones said, that is the figure that the CBO arrived at after crunching numbers. It is difficult to increase costs in most businesses without having to find a way to cut costs.

I think that it is important to look at these figures and remember that;
1) 30 hours is now considered full time
2) the employer mandate has not kicked in
3) many large employers have already said that the ACA will affect their recruitment, and may affect their current staffing levels.

Automatically Appended Next Post:

DarkTraveler777 wrote:
It read to me that the 28 million figure is referring to those workers who would gain in wages with a $10.10 minimum wage increase; i.e. anyone making under $10.10 currently. Which makes me wonder about those 900K who would be pulled out of poverty. Are those just folks living in states with a high cost of living but still making the low Federal minimum wage?

Then again, everything I posted above may just be wrong since math makes my brain freeze up and turn on the derp.

But the CBO only gave the figure as 16.5 million for those having a direct benefit in their wages going up.

I would imagine that a lot of unions are rubbing their hands in glee. A lot of them have wages etc. based on the minimum wage so they will all see their income increase too.

**dogma**

Dreadclaw69 wrote:

But the CBO only gave the figure as 16.5 million for those having a direct benefit in their wages going up.

No, the article you posted, which itself cited another article that was ostensibly based on CBO data, gave that figure.

**-Shrike-**

No, the CBO report only gives 16.5 million. Unless I'm being really stupid, I can't see anywhere 28 million is mentioned except in the opening sentence of the article.

**KingKodo**

I think they need to look outside of how it effects our economy and more about how it effects our industry on an international scale. Increasing minimum wage will cause many businesses to look overseas to fill those jobs. Maybe they should be looking into decreasing living expenses instead.

**Breotan**

This anti-poverty angle is a crock. Most people earning minimum wage are kids with part-time jobs, like high school and college students. And there will apparently be 500,000 fewer jobs for them in the future. I wonder how many of those other 900,000 jobs will have their hours cut to 35 or less?

**d-usa**

Breotan wrote:
This anti-poverty angle is a crock. Most people earning minimum wage are kids with part-time jobs, like high school and college students. And there will apparently be 500,000 fewer jobs for them in the future. I wonder how many of those other 900,000 jobs will have their hours cut to 35 or less?

My highly non-scientific poll of walking into my local fast-food restaurant and seeing the ages of the workers there makes me question your idea of who the minimum wage workers really are.

Hell, I can't remember the last time I had a teenager deliver my pizza.

**Ahtman**

d-usa wrote:
Hell, I can't remember the last time I had a teenager deliver my pizza.

Now that you mention it I can't either.

**Dreadclaw69**

d-usa wrote:
Breotan wrote:
This anti-poverty angle is a crock. Most people earning minimum wage are kids with part-time jobs, like high school and college students. And there will apparently be 500,000 fewer jobs for them in the future. I wonder how many of those other 900,000 jobs will have their hours cut to 35 or less?

My highly non-scientific poll of walking into my local fast-food restaurant and seeing the ages of the workers there makes me question your idea of who the minimum wage workers really are.

Hell, I can't remember the last time I had a teenager deliver my pizza.

The Department of Labor seems to disagree with your poll; "minimum wage workers tend to be young" and "about half of those are paid the Federal minimum wage or less" are below 25
http://www.bls.gov/cps/minwage2012.htm
http://www.bls.gov/cps/minwage2011.htm

**d-usa**

Well, "half are less than 25" is still quite a bit different than "most are kids with part-time jobs in high-school or college" though.

**djones520**

d-usa wrote:
Well, "half are less than 25" is still quite a bit different than "most are kids with part-time jobs in high-school or college" though.

Maybe not. 33% of people 25-29 have college degrees. So it's reasonable to assume that a good chunk, if not the majority, of people in the 18-25 age group could be in college, and of course most of the 14-18 age group will be in high school.

**Ahtman**

Having an undergrad degree isn't what it used to be. Of those 33% how many are doing what they went to school for, how many are underemployed, and how many are unemployed?

**djones520**

Ahtman wrote:
Having an undergrad degree isn't what it used to be. Of those 33% how many are doing what they went to school for, how many are underemployed, and how many are unemployed?

27?

I was just using it as a basis to say if 33% made it to a degree, then it's reasonable to assume a larger percentage of the earlier age group are in college.

**hotsauceman1**

Ahtman wrote:
d-usa wrote:
Hell, I can't remember the last time I had a teenager deliver my pizza.

Now that you mention it I can't either.

Simple. Delivering pizza requires your own car, atleast in cali. Sometimes they wont even pay for gas. How many kids have their own cars? Like their own personal car?
And, atleast around here, hey require you to work ANY hours at a moment notice for fast food jobs. Typically Small Business are actually the biggest employers of teens

**d-usa**

djones520 wrote:
d-usa wrote:
Well, "half are less than 25" is still quite a bit different than "most are kids with part-time jobs in high-school or college" though.

Maybe not. 33% of people 25-29 have college degrees. So it's reasonable to assume that a good chunk, if not the majority, of people in the 18-25 age group could be in college, and of course most of the 14-18 age group will be in high school.

But the original argument was that "most minimum wage workers are kids, so we shouldn't care about them". I questioned that and the report shows that half are under the age of 25. And half is not exactly the same as most.

I'm not arguing the fact that a sizable portion of minimum age workers under the age of 25 could easily be students. I'm arguing the fact that student teenagers are the majority of minimum age workers.

**djones520**

hotsauceman1 wrote:
Ahtman wrote:
d-usa wrote:
Hell, I can't remember the last time I had a teenager deliver my pizza.

Now that you mention it I can't either.

Simple. Delivering pizza requires your own car, atleast in cali. Sometimes they wont even pay for gas. How many kids have their own cars? Like their own personal car?

Most of the people in my class did.

**d-usa**

hotsauceman1 wrote:
Ahtman wrote:
d-usa wrote:
Hell, I can't remember the last time I had a teenager deliver my pizza.

Now that you mention it I can't either.

Simple. Delivering pizza requires your own car, atleast in cali. Sometimes they wont even pay for gas. How many kids have their own cars? Like their own personal car?

In a place without any reliable public transportation? The vast majority I would say.

**hotsauceman1**

Interesting. I know quite a few had cars, but they where under their parents name and I think they want it to be your car

**djones520**

d-usa wrote:
djones520 wrote:
d-usa wrote:
Well, "half are less than 25" is still quite a bit different than "most are kids with part-time jobs in high-school or college" though.

Maybe not. 33% of people 25-29 have college degrees. So it's reasonable to assume that a good chunk, if not the majority, of people in the 18-25 age group could be in college, and of course most of the 14-18 age group will be in high school.

But the original argument was that "most minimum wage workers are kids, so we shouldn't care about them". I questioned that and the report shows that half are under the age of 25. And half is not exactly the same as most.

I'm not arguing the fact that a sizable portion of minimum age workers under the age of 25 could easily be students. I'm arguing the fact that student teenagers are the majority of minimum age workers.

Fair point.

**sebster**

The article in the OP is pretty crappy, basically picking and choosing from the CBO report to try and contrive a false question of '900,000 out of poverty, or 500,000 jobs - you decide.' Far better to go to the CBO report itself, and see it compare two minimum wage options, $10,50 and $9.00 and see the impacts of each.

Their findings are interesting and extensive, but the most interesting part is that the impact on jobs is very broad (two thirds chance of being between practically nothing and a one million jobs reduction). Future wage growth is something that's normally fairly reliably predicted a couple of years in advance, but in this economy it's a lot more of a gamble. So what the CBO is saying is that wages could grow quite well in the next few years, so by 2016 a $10.50 minimum wage will have little impact on overall jobs, but if wages remain stagnant as the economy continues to be flat, then a hike to $10.50 could have a considerable impact on jobs.

But the second option, an increase to $9.00 an hour, is likely to have a fairly small impact on overall jobs, even if the economy is still flat. Making it a much safer measure, and, in my opinion, a very safe step to take given the uncertain economy.

It's a really good report, and one that was contrary to my own instincts - I would have thought an increase to $10.50 would have had a largely negligible impact (and have argued such on dakka before), but the CBO findings are reporting that unless wage growth in the next couple of years offsets that, the economic impacts will be considerable. So I'm happy to be corrected, and see that $9.00 is a much better option, and if wages growth does take off in a recovering economy, well then another increase to the minimum wage becomes sensible, but there's no point committing until we've seen that wages growth.

And if you care to read deep enough in to the CBO report, you'll find a very interesting table that projects the income effects to people in different income brackets. Even an increase to $10.50 will have an almost unrecognisable impact on prices, in fact a person earning $186,000 a year would find themselves out of pocket a whopping $200 a year. So hopefully we can scratch that 'everyone else pays so much more' myth now.

djones520 wrote:
Fair point.

Thankyou for recognising the point. Kudos.

Anyhow, the CBO spreads a bit of light on who'd be impacted by the minimum wage increase - it looks at what portion of people on less than the proposed new minimum wage are in each bracket of household income. On page 13, it states that 20% of low wage earners are in families who make in total household income less than the poverty line - that's a family of four with a total household income of about $23,500. 36% are in families earning less than 1.5 times the poverty line, so a family of four earning about $35,250 in total. So while a portion are kids earning in families making themselves some spending money, a large number are in families that are really are pretty close to the line.

**Peregrine**

Here's a better solution: set the minimum wage for each company at a fixed percentage of the highest salary (including the value of all benefits/stock payments/etc) given by that company. Want to make money as a CEO? Pay your employees properly. And if you really want to fix things you can add in some multipliers on that percentage: lower minimum wage relative to CEO pay if you hire lots of full-time employees, massive penalties for hiring 39.9 hour a week employees to avoid paying them benefits. Now you have a choice between giving full-time jobs that pay enough to live off of, or having a bunch of part-time jobs making $5 an hour while you as the CEO make $10 a year.

**Steve steveson**

Peregrine wrote:
Here's a better solution: set the minimum wage for each company at a fixed percentage of the highest salary (including the value of all benefits/stock payments/etc) given by that company. Want to make money as a CEO? Pay your employees properly. And if you really want to fix things you can add in some multipliers on that percentage: lower minimum wage relative to CEO pay if you hire lots of full-time employees, massive penalties for hiring 39.9 hour a week employees to avoid paying them benefits. Now you have a choice between giving full-time jobs that pay enough to live off of, or having a bunch of part-time jobs making $5 an hour while you as the CEO make $10 a year.

People claim that it would be economically damaging and restrict growth and "getting the best people", yet Germany seems to be doing ok.

**trexmeyer**

Minimum wage jobs SHOULD be occupied by high school and college students. In college towns a very high percentage of those jobs actually are filled by such individuals. In the rest of the world, AKA reality, those jobs are occupied by seniors, minorities, individuals with only or less than a HS Diploma or GED, and individuals that are borderline homeless.

**sebster**

Peregrine wrote:
Here's a better solution: set the minimum wage for each company at a fixed percentage of the highest salary (including the value of all benefits/stock payments/etc) given by that company. Want to make money as a CEO? Pay your employees properly. And if you really want to fix things you can add in some multipliers on that percentage: lower minimum wage relative to CEO pay if you hire lots of full-time employees, massive penalties for hiring 39.9 hour a week employees to avoid paying them benefits. Now you have a choice between giving full-time jobs that pay enough to live off of, or having a bunch of part-time jobs making $5 an hour while you as the CEO make $10 a year.

It doesn't really work, because the job and requirements of a CEO's position changes massively based on the scale of the company. If you've got a local burger chain, with five stores across one city, well then the CEO is basically going to be dealing with supplier issues, overall quality control, stuff like that. But if that burger chain has stores across the planet, well then the CEO is going to be dealing heavily in matters of international finance, large scale capital raising, workers rights and responsibilities in multiple jurisdictions etc...

Having both with max rate of pay of x times the rate paid to the burger flipper just doesn't work.

**Peregrine**

sebster wrote:
It doesn't really work, because the job and requirements of a CEO's position changes massively based on the scale of the company. If you've got a local burger chain, with five stores across one city, well then the CEO is basically going to be dealing with supplier issues, overall quality control, stuff like that. But if that burger chain has stores across the planet, well then the CEO is going to be dealing heavily in matters of international finance, large scale capital raising, workers rights and responsibilities in multiple jurisdictions etc...

Having both with max rate of pay of x times the rate paid to the burger flipper just doesn't work.

But this criticism assumes that the local chain's CEO is actually worth the maximum CEO pay relative to the minimum-wage burger flipper. If you set the maximum CEO pay at a reasonable level of compensation for upper management of a major international corporation then only those employees will feel any impact from the law, while the local-company CEO isn't making enough to reach the cap anyway. Only two groups of people are going to see their salaries limited: major-corporation CEOs who feel entitled to obscene wealth (instead of just enough to be comfortably rich) while exploiting the labor of people who can't even pay for basic needs, and small-business CEOs who feel entitled to large-scale paychecks.

And hey, if the big-company CEO feels that they're worth more because of all their extra responsibilities then they're always free to pay their lowest-level employees more and raise their own salary in the process. Or, if you really want to be generous to the poor overworked CEOs then you could set the cap at a variable amount based on the number of employees in the company. Say, 10x the lowest salary, with a 1% increase for every X full-time employees.