Friday, February 21, 2014

CBO Minimum Wage Study Is Biased

This is what happens when you do not do your own research. The Congressional Budget Office released a study that said raising the federal minimum wage (something US Person has advocated in this space) to $10.10/hr would allow 16.5 million Americans more purchasing power and lift 900,000 or more out of poverty. All well and good, but the study also said it would cost 500,000 jobs. Immediately the corporatists and their handmaidens in Congress jumped on that figure and said, "I told you so." Not so fast, matey. That conclusion was based on a survey of other economic work on the subject and the CBO simply pulled a number it liked out of the ether or black matter, which ever you prefer. The appendix to the report does not explain the methodology used because there was none. The meta-number of employment elasticity (-.75) is a little below estimates used in papers by Neumark & Wascher, Sabia & Burhauser, but higher than those used in papers by Dube, Reich and others. After the CBO report came out, several economists such as Michael Reich, former Labor Secretary and a professor at Berkeley, criticized it for making arbitrary assumptions. Increasing wages leads to major reductions in turnover which is expensive for employers given lost productivity and training costs, but the report does make it clear it includes those savings. US Person is not an economist but does he have to be to think the multiplier effect of higher wages will outstrip any temporary reduction of workers due to higher labor costs? NOT.  Don't believe him, ask Wal-Mart!