CBO: Minimum wage increase will wipe out 500,000 jobs
Good news: half a million Americans will be freed from the shackles of employment if the minimum wage increase pushed by President Obama becomes a reality, according to the latest Congressional Budget Office estimates. That sounds like just the ticket for an economy that can’t pull itself out of double-digit real unemployment. We’ll have “emergency unemployment benefits” for an unemployment emergency that stretches into consecutive decades. Won’t that be awesome? Actually, it might be even more awesome that that, because CBO estimates a significant chance that job losses over the next couple of years could surge as high as one million.
Naturally, the same Democrats who used to insist that CBO was the gold standard for non-partisan predictions are now dismissing it as a bunch of goofballs who have the temerity to dispute the “economic consensus” that raising the minimum wage will unleash a swarm of magical job fairies who will conjure plenty of great jobs out of thin air. These are the same Democrat geniuses who assured us that ObamaCare would save everyone $2500 a year on their insurance premiums. What the heck – they’ll say any crazy thing it takes to win the current political battle, because once a higher minimum wage is in place, there’s no way in hell it’s ever coming down. Who cares about the consequences?
CBO decided to model both the $10.10 minimum wage Democrats want, and a $9 minimum wage that would have significantly less grisly effects on employment. In both cases, net real income for the people lucky enough to keep their jobs would increase, which would be a stronger selling point if long-term unemployment was not already at crisis levels. The Hill provides a capsule summary of the projected effects:
CBO looked at two options for raising the minimum wage, and did so without prompting from Congress.
The first is similar to the Senate Democratic approach, and would raise the minimum wage in three steps every year through 2016 until reaching the $10.10 level on July 1, 2016. This option also includes an increase to the minimum wage for tipped workers and indexes the wage increase to inflation.
CBO also looked at a second option in which the wage rises to $9 per hour over two years. Under this option, CBO did not index the wage hike to inflation.
Under this scenario, there would be 100,000 fewer jobs in 2016 than if the wage was not changed. Low-wage workers still employed would make $9 billion more and real income increases factoring in job losses would be $1 billion.
Under the $10.10 option, 900,000 fewer people would be living in poverty by 2016, while under the $9 option 300,000 people would rise out of poverty, CBO found.
Contrary to what you might be thinking, the bulk of this projected income gain does not accrue to people currently flipping burgers for $7.25 an hour. Minimum wage increases have ripple effects much further up the income scale. According to the CBO projection, only about a fifth of the income boost from a minimum wage increase would reach families currently living in poverty. And those unfortunate souls might be hardest hit by the increased consumer prices that would come from a broad increase in the cost of labor, a phenomenon the Congressional Budget Office acknowledges without modeling precisely. It’s not hard to imagine the goods and services most directly associated with minimum wage labor, such as restaurant food, getting considerably more expensive, particularly if ObamaCare is already changing business calculations.
This is where the Magical Job Fairies are supposed to come in, because the people who still have jobs will spend the money from their mandated higher paychecks, causing new jobs to appear as businesses rushed to scoop up the lettuce. If that sounds familiar, it’s because Democrats have been saying the same thing for years about unemployment checks, which are supposedly a mighty job-creating stimulus – the most powerful one on Earth, according to House Minority Leader Nancy Pelosi – because government giving money to citizens = spending = job creation. Of course, actual reality bears no resemblance whatsoever to this ideology.
The Hill mentions the previous bombshell CBO report, which saw 2.5 million jobs evaporating because of ObamaCare – an estimate, let it be noted, that didn’t factor in the really hard-core job killing power of the employer mandate, because King Barack delayed it for a year. Throwing another 500,000 lost jobs on top of that pile doesn’t sound like such a good idea.
There is an interesting debate to be had about the trade-offs between rising average income and lost jobs, although the unpredictable effects of rising consumer prices due to increased labor cost are a tidal factor that is truly difficult to work into any “what’s best for society?” spreadsheets. Obviously, if you’re one of the people who gets canned, it’s cold comfort to know other people are getting more money; conversely, if you’re secure in your employment, it feels good to hear a politician with no skin in the game thunder that you deserve a raise.
Taking the big-picture view, is it worth 500,000 or 1 million jobs to raise net income for the people who still work? That question might be answered one way when the economy enjoys nearly full employment, but another when you’re grappling with a collapsing workforce and a permanent “emergency” that threatens to transform unemployment insurance into a permanent welfare program. As a society, we can’t afford the unemployed people we already have, and we definitely can’t afford to see this turn into a generational crisis. A sizable portion of the jobs that would be lost to a minimum-wage increase will keep young people completely out of the job market.
We desperately need more jobs, fast, so it’s silly to talk about policies that could blow another million of them away. Let’s bring the “unemployment emergency” to a close before we talk about pricing anyone else out of the market.