Wonkbook: What you need to know about the CBO’s minimum-wage report

February 19, 2014

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(Photo by Michael Reynolds/EPA)

Wonkbook's Number of the Day: 500,000 and 16.5 million. The first number is the killer of the CBO report. The second is its grace. The former is an estimate of the number of Americans who will lose their jobs if the minimum wage is raised to $10.10, while the latter is the number who will see their income rise.

Wonkbook's Graph of the Day: How wages of the poor interact with the minimum wage, from the CBO report.

Wonkbook's Top 5 Stories: (1) it will reduce both jobs and poverty; (2) cutting truck gas use; (3) throw the U.S. economy a life preserver; (4) Arkansas nixes its Medicaid private option; and (5) here comes the debt again.

1. Top story: What you need to know about the CBO's minimum-wage report

CBO: Obama’s minimum wage plan would cost jobs but reduce poverty. "[T]he CBO found that raising the minimum wage to $10.10 an hour (and then indexing it to inflation) would reduce employment by between a very small amount and 1 million workers, with the agency's best guess being about 500,000 workers...At the same time, the report finds that about 16.5 million low-wage Americans would see an increase in their earnings as a result of the hike in the minimum wage. A much smaller number of higher-wage earners would also see a jump in income, the CBO said...Finally, the CBO report offers a useful historical analogy for the proposed increase. Over the past 30 years, an average of roughly 5.3 percent of workers earned between the old and new minimum wages when Congress legislated a change. This time, under the $10.10 option, 10.1 percent of workers do. That's a testament to not only how far the minimum wage has fallen in real terms but also to how significant the increase would be relative to the size of the workforce." Zachary A. Goldfarb in The Washington Post.

Primary source: Read the CBO report here.

Summary: 5 takeaways from the reportDamian Paletta in The Wall Street Journal.

How the news is spun. "Boosting the minimum wage may cost as many as 500,000 people their jobs, said a new report from Congress’s financial scorekeeper that diminishes chances for an agreement on one of President Barack Obama’s priorities. The effort by Obama and Senate Democrats to raise the minimum wage to $10.10 an hour already faced opposition in the Republican-led House. Yesterday’s report from the Congressional Budget Office provided more fodder for Republicans who have been arguing the proposal would kill jobs...The report also showed that raising the minimum wage from $7.25 an hour may lift about 900,000 Americans out of poverty, supporting Democrats’ arguments in favor of the legislation." Michael C. Bender in Bloomberg.

Should restaurants worry about the minimum wage? "If the arguments of restaurant owners were accurate, you'd expect those increases to correspond with a drop in the number of people working at restaurants, as restaurants react to higher labor costs by firing people. Yet the first chart shows no such effect. The solid line represents the number of total restaurant workers, from 1990 to the end of last year, as reported by the U.S. Bureau of Labor Statistics. As you can see, the only dips in restaurant employment came during the recessions of 1990-1991 and 2008-2009. Although those drops followed increases in the minimum wage, increases outside of recessions -- in 1996, 1997 and 2007 -- didn't lead to reductions in employment levels." Chris Flavelle in Bloomberg.

@BenjySarlin: Kind of a LOL to watch Democrats rag on the CBO after the last x years of it being the exact reverse

How Obama secretly became the anti-poverty president. "When he talks about the issue, he often shows a bit of insecurity, a worry that people will think he’s a tax-and-spend liberal who gives handouts to the poor. He’s far more comfortable talking about the middle class, economic growth and opportunity. The irony is that even as he has shied away from talking about poverty, a relentless focus on helping the poor is perhaps the most unifying principle behind his approach to the economy. From the beginning of his first term to his second-term priorities, Obama has advocated policies whose disproportionate beneficiaries are people in poverty or near it." Zachary A. Goldfarb in The Washington Post.

@ModeledBehavior: Some act like min wage non-impact is clear result from literature & only partisans disagree. CBO should be is a corrective at least to that

BERNSTEIN: When a minimum wage hike is worth it. "[P]olicy makers need to be concerned about the quantity of jobs, and pursue policies that will increase that number. But they also have to worry about job quality, especially in the low-wage sector, where the decline in the real value of the minimum wage, the increase in earnings inequality (meaning less growth finds its way to the low end of the wage scale), and the low bargaining power of the work force have placed strong, negative pressure on wage trends for decades." Jared Bernstein in The New York Times.

WEISSMANN: Liberals need to think beyond the minimum wage. "At the same time, the report also demonstrates the limits of the minimum wage as a policy tool for curing poverty or bolstering the middle class. There are currently about 45 million people living in poverty—the CBO's estimate suggests the wage hike being debated in Washington would only reduce that number by 2 percent. Among families under the poverty line, average incomes wouldn't increase any more than 3 percent...For liberals looking for ways to combat inequality and poverty, raising the minimum wage would be a good start, but no more." Jordan Weissmann in The Atlantic.

PONNURU: Raising the minimum wage is still a bad idea. "A 2013 survey of some of them asked whether raising the minimum wage to $9 an hour “would make it noticeably harder for low-skilled workers to find employment.” Thirty-four percent said yes, 32 percent said no and 24 percent said they were not sure...Note, though, that we are talking about a minimum wage higher than $9. Going up to $10.10 would be an almost 40 percent increase, and that increase would take place in a labor market that, while slowly improving, has been weak for years." Ramesh Ponnuru in Bloomberg.

@arindube: CBO report went with a higher jobs effect than warranted by careful reading of literature. But even their wage impact >> jobs impact.

KONCZAL: The CBO places its thumb on the scale. "[T]he CBO’s methodology is weighed to overstate the impact of a $10.10 minimum wage on jobs, while also understating the benefits. Even then there’s a clear tradeoff - a minor fall in jobs for serious real gains again inequality and wage security. Never mind the scary headlines, or the report that unfortunately plays to them: When you consider that the academy is far more ambiguous about the costs of giving the country a raise, and more bullish on the benefits, this is still an excellent deal for working Americans. " Mike Konczal in The New Republic.

Music recommendations interlude: Basia Bulat, "Go On."

Top opinion

SAHLGREN AND LE GRAND: Competition works in education. "In a recent study, two education economists – Martin West of Harvard and Ludger Woessmann of the University of Munich – have broken out of this short-term perspective and presented compelling evidence that competition works. Their trick is to make clever use of an accident of history. In the 19th century the Roman Catholic church faced a crisis of influence as protestant governments set up school systems that were beyond Papal influence. The Vatican responded by setting up its own schools. This early experiment in a competitive school system has left its mark, in the form of a parallel education system that persists to this day...Prof West and Prof Woessmann find that in these countries – where the legacy of the Vatican’s efforts is competition between schools – attainment is strongest. The effect remains even after adjusting for socioeconomic factors that influence grades." Gabriel Sahlgren and Julian Le Grand in The Financial Times.

SWAGEL: The bank rescue, five years later. "Geithner is writing a book and can eventually give his account of these and other initiatives while he was Treasury secretary, including those on housing, where the results are still widely seen as not living up to the administration’s promises. On the bank rescue, however, the passage of time casts a considerably more favorable light than could possibly have been imagined back when his financial stability plan was announced." Philip Swagel in The New York Times.

HARDING: A high price for ignoring the risks of catastrophe. "The financial crisis – and growing scientific evidence that there are small but real risks of extreme climate change – suggest a way forward. Rather than try to price the unknowable with precision, we should consider the uncertain odds but terrifyingly high costs of a catastrophe, then ask what we will pay for insurance against it. That might even be an easier way to sell stalled action on carbon emissions." Robin Harding in The Financial Times.

BARTLETT: The ebb and flow of executive power. "When, under President George W. Bush, Mr. Cheney and Mr. Rumsfeld occupied high-level positions, as vice president and as secretary of defense, they consciously sought to restore the president’s power that had been surrendered by Nixon. They were highly successful, bequeathing to President Obama a significantly strengthened presidency, which Republicans now berate Obama for using." Bruce Bartlett in The New York Times.

DAYEN: Can anybody save California? "The mega-drought is pitting farmers against fishermen, north against south and, of course, Democrats against Republicans. But that’s frequently the case in California, which has battled for more than a century over how to allocate too little water for too many people. The dry landscape adds another layer of rancor, and with the planet heating up and fueling bigger, longer and more severe droughts, that’s likely to be a permanent fixture. How state and federal lawmakers respond to the crisis could offer a window into how the United States writ large will react to climate events in real time—and so far, the politics appear too small for the task." David Dayen in Politico.

Animals interlude: This is your cat on LSD.

2. Trucking to get a little cleaner

U.S. to raise fuel efficiency standards for larger trucks. "Obama did not specify what new standard the Environmental Protection Agency and the Department of Transportation should set for these larger trucks, which weigh more than 8,500 pounds...The new greenhouse gas standards will become final by March 2016, Obama said, and will apply to subsequent model years." Juliet Eilperin in The Washington Post.

EPA's emissions rules go in front of the Supreme Court. "Seven years after a landmark Supreme Court ruling cleared the way for federal regulation of greenhouse gases, the justices will consider whether the Environmental Protection Agency has stretched its powers too far in applying new emissions rules. The stakes are high for both the EPA and the industries it is targeting to help curb pollution. Businesses say a win for the EPA could pave the way for the agency to dictate the design and operation of a wide range of industrial facilities, imposing billions of dollars in new costs. A loss could threaten the EPA's immediate ability to require greenhouse-gas controls and complicate its broader carbon-emissions agenda." Brent Kendall in The Wall Street Journal.

Oh my interlude: What can go wrong in ski jumping.

3. Throw the U.S. economy a life preserver

Washington wonks pitch ideas to boost entrepreneurship and the economy. "During a start-up-style pitch competition last week, several policy experts outlined the single most powerful step they think federal lawmakers could take to foster higher entrepreneurship rates and bolster the country’s ailing economy. One by one, they laid out and defended ideas ranging from new work visas for foreign-born entrepreneurs to new tax credits for firms that hire job candidates that have been long out of work." J.D. Harrison in The Washington Post.

The most depressing economist is out with another big downer. "Northwestern University professor Robert Gordon -- who gave us a downer in 2012 on the question "Is U.S. Economic Growth Over?" -- is out with a new, depressing paper. This time Gordon takes aim at the so-called techno-optimists, such as the authors of the new book "The Second Machine Age," who claim that technological growth is accelerating. Gordon disagrees, saying that we shouldn't expect technology to dramatically improve economic performance over the coming half-century." Zachary A. Goldfarb in The Washington Post.

Explainer: Three reasons our economy isn’t doomedZachary A. Goldfarb in The Washington Post.

Homebuilders turn pessimistic. "U.S. home builders are losing confidence in the housing market amid severe weather, worker shortages and limited land availability, the latest sign of flagging momentum for the industry. Builder confidence in the market for single-family homes dropped to 46 in February, down sharply from a reading of 56 a month earlier, the National Association of Home Builders said Tuesday." Jeffrey Sparshott in The Wall Street Journal.

Fed requires foreign banks in U.S. to hold more money in reserves. "Big foreign banks operating in the United States will have to keep far more money in their reserves to reduce risks to the financial system, pulling them in line with their American competitors, the Federal Reserve said Tuesday. The board voted 5 to 0 to adopt the stricter regulations meant to limit the risks posed by foreign firms, which have been lending aggressively in the U.S. but setting aside far less to cover losses...The Fed rule applies to 107 foreign firms that have at least $50 billion in total assets around the world. These banks will have to establish a council to examine their riskiness and submit to stress tests analyzing how they would fare in a severe economic downturn. Of these firms, 23 large ones, some with as much as a half-trillion dollars in assets, will face even stricter standards in the U.S. These companies will have to have enough money set aside to cover 14 days of operations in an emergency." Danielle Douglas in The Washington Post.

White House rep responds to liberal backlash against free trade deals. "In what is becoming an uphill battle, U.S. Trade Representative Mike Froman on Tuesday continued the long climb in a speech billed as a major effort to reconcile the free trade agreements that the administration is negotiating with Asia and Europe with a progressive labor, environmental and jobs-oriented agenda...Froman's key argument was a broader one: that globalization is here, likely to deepen, and that while it has been disruptive to individual workers it has also "proven to be the most powerful force for alleviating poverty and raising living standards around the world."" Howard Schneider in The Washington Post.

Tennessee was afraid of the United Auto Workers. Here’s why it shouldn’t be. "[P]ro-UAW organizers at the Volkswagen plant focused on the benefits of representation and coordination with management, rather than a long-term monetary upside. But if the employees have less to gain from joining a union, financially, the companies have less to lose -- which is why policymakers shouldn't fear them taking root." Lydia DePillis in The Washington Post.

Hilarious interlude: Sir David Attenborough renarrates Olympic curling.

4. Arkansas nixes the Medicaid private option

Arkansas House fails to pass 'private option' law. "The Arkansas House of Representatives on Tuesday failed to pass legislation to continue a state program that used Medicaid dollars to enroll low-income residents in private health insurance, throwing the future of the nationally watched program into doubt...Failure to keep Arkansas's private-option program running could derail the Obama administration's broader goals of getting a majority of states to cover lower-income residents using Medicaid dollars. The Arkansas House voted 70 to 27 Tuesday to continue financial authorization for the state program, falling five votes short of the 75 needed for passage under state legislative rules." Ana Campoy and Louise Radnofsky in The Wall Street Journal.

Obamacare's impact has only begun. "[T]he federal law also upended existing health-insurance arrangements for millions of people. Companies worry about the expense of providing new policies, some hospitals aren't seeing the influx of new patients they expected to balance new costs and entrepreneurs say they may hire more part-time workers to avoid offering more coverage...[T]The law's true impact will play out over years. It will depend in part on whether backers overcome serious early setbacks, including crippling glitches in the new online insurance marketplaces and many states' rejection of the Medicaid expansion. But another obstacle the law faces is pushback from some consumers and industry over the higher costs, complex rules and mandatory requirements it imposes." Anna Wilde Mathews in The Wall Street Journal.

Obamacare is struggling to find the uninsured. "Many of their targets, people identified on sophisticated computer lists generated in Washington as unlikely to have health insurance, had moved away. Some were not home. Many said they already had insurance through Medicare, their parents or a job. A few were hostile at the mere mention of President Obama’s health care law...Such are the limits of microtargeting the uninsured as groups supporting the Obama administration take to the streets on behalf of the president’s most important domestic initiative. The nationwide effort is modeled on Mr. Obama’s successful voter turnout machines in 2008 and 2012, but in this case the task of finding Americans without health insurance and signing them up is a painfully slow grind." Michael D. Shear in The New York Times.

Conservative heart attack interlude: Baby has three parents on birth certificate in British Columbia.

5. Here comes the debt again

An ambiguous omen, household debt begins to rise again. "American households took on $241 billion in additional debt in the fourth quarter of last year, signaling the end of an extended period of hunkering down. Total household debt increased 2.1 percent, the largest quarterly increase since before the recession, according to a new report from the Federal Reserve Bank of New York...While a willingness to borrow can be an indication that households are more confident in their economic futures, it can also indicate that they are struggling to maintain spending levels in the face of high unemployment and stagnant wages." Shaila Dewan in The New York Times.

Graphs: Student debt is terribleDina ElBoghdady in The Washington Post.

Proliferation of student debt driven by the weakest borrowers, Fed finds. "Of the 12% rise in student debt, a third—or four percentage points—came from borrowers with the weakest credit history, or those with credit scores of 620 or lower. About five percentage points came from those with scores between 621 and 680, and roughly two points of the gain was from those in the middle quintile—scores between 681 and 720. Only about one percentage point came from those in the 720-to-780 range. And among those with scores above 780, student debt was flat." Josh Mitchell in The Wall Street Journal.

Extraterrestrial interlude: A trip to Mars needn't break the bank.

Wonkblog Roundup

CBO: Obama’s minimum wage plan would cost jobs but help millionsZachary A. Goldfarb.

Curlers more likely to hurt themselves than lugers, speed skatersChristopher Ingraham.

Tesla stock gets another joltSteven Mufson.

Student debt is terrible, in chartsDina ElBoghdady.

Three reasons our economy isn’t doomedZachary A. Goldfarb.

How Obama secretly became the anti-poverty presidentZachary A. Goldfarb.

Tennessee was afraid of the United Auto Workers. Here’s why it shouldn’t beLydia DePillis.

The most depressing economist is out with another big downerZachary A. Goldfarb.

White House rep responds to liberal backlash against free trade dealsHoward Schneider.

There will be a movie about Magic: The Gathering. Here’s why. Lydia DePillis.

Et Cetera

Study: Repealing Missouri’s background check law associated with a murder spikeNiraj Chokshi in The Washington Post.

Got tips, additions, or comments? E-mail us. Wonkbook is produced with help from Michelle Williams.

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