The Congressional Budget Office (CBO) is playing tug-of-war with President Obama on whether increasing the minimum wage would decrease poverty in the U.S. at the expense of job numbers. This raises two questions: What do the expert economists in the U.S. say? And, how does this compare to numbers in other developed countries?
President Obama says that raising the minimum wage to $10.10 (up from $7.25 per hour) will benefit as many as 16.5 million Americans – or 15 percent of the workforce – by lifting them out of poverty. The CBO counters that this would result in a loss of approximately 500,000 low-wage positions across the U.S., saying that businesses would be forced to lay off workers or higher fewer.
The discrepancy highlights differences between Republicans and Democrats regarding the solutions for the nation’s economy. The Democrat stance states that the increase would “deliver broad economic benefits, giving employers a more stable, productive and satisfied workforce.” Rep. Chris Van Hollen (D-MD), the senior Democrat on the House Budget Committee, states that the move would be “in the best interest of [the] country.”
On the other hand, Republicans blame the White House of indulging one segment of the population without recognizing the consequences of such a policy change. They maintain that the loss of low-wage jobs would be more distressing than the benefits gained by the increase.
This leads to the two original questions: How does this play out among U.S. expert economists? And, what do the European Union and Asia have to say about the U.S. minimum wage?
The first look points to the views of U.S. economists: Federal Reserve Bank of Chicago economists Daniel Aaronson and Eric French write that an increase in the minimum wage would significantly boost household spending. Using 2013 figures, they estimate that this would result in a .3 percent improvement of the U.S. Gross Domestic Product (GDP). They further explain that, even considering the possibility of job losses, spending would still pick up by $28 billion, or .2 percent of GDP. They elaborate that hiking the minimum wage does not result in job losses and they enumerate why.
Particularly, most people who earn minimum wage are low-income and therefore apt to spend more of their income. Therefore, a minimum wage hike gives funds to those who are most expected to spend it. Additionally, low wage jobs are said to be an important part of economic recovery for the U.S., having contributed 58 percent of new jobs. Moreover, in the past 30 years, C-suite senior level managers have seen their pay grow 127 times faster than those of entry level workers, and the latter have had relatively flat pay over the same period. Socially there are benefits, as well, with increased minimum wage having a causal relationship to reduction in violent crime as well as lifting people of color out of poverty.
However, Republicans, led by Speaker of the House John Boehner (R-OH) oppose the increase, referring to how the economy may be harmed. This has led to calling for abolishment of the minimum wage, as suggested by Lamar Alexander (R-TN).
Former White House Economic Advisor, Prof. Alan Krueger of Princeton says, “I think for our country as a whole to do well, we need to have broader growth, more shared prosperity.” He continues “I think that raising the minimum wage is a very defensive policy that will help lower income workers. I think that we’re hurting opportunities for the next generation because the bottom half has struggled so much over the last couple of decades.”
On the other hand, James Pethokoukis, a columnist and blogger for pro-business policy research organization American Enterprise Institute, states that although raising the minimum wage might not result in job loss, “there is evidence [that] it hurts future hiring.” He explains that most economists believe that wage subsidies would be a better solution and less likely to distort the labor market, and would affect taxpayers less, at least directly.
This article has examined the minimum wage in the U.S. and the view of expert economists here. What about other nations? Worldwide, the U.S. ranks second to the lowest, outranking only China at $2.24/hour, with Australia in the lead in terms of minimum wage pay. Next ranked are France, the U.K., and Japan.
With President Obama’s minimum wage proposal hike, the lowest-paid American workers would still trail counterparts in major industrial countries. In addition, the Organization for Economic Cooperation and Development (OECD) demonstrates how nine countries provide a higher minimum wage than President Obama is proposing. Some developed nations have minimum wages lower than the U.S., but there are not many.
Editorial by Fern Remedi-Brown