Minimum Wage Rhetoric Doesn't Match Reality

A higher minimum wage will most certainly cost us jobs.

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The White House was playing defense this week in response to a new report from the nonpartisan Congressional Budget Office estimating that half a million jobs would be lost if minimum wage increased to $10.10 an hour.

While praising the sections of the report they approved of, the Obama administration was critical of the CBO’s suggestion that a higher minimum wage would cost jobs. They offered up the same argument that David Brodwin — co-founder of the American Sustainable Business Council — recently made on these pages ("Why A Higher Minimum Wage Doesn't Kill Jobs," February 14): While a simplistic “Economics 101” perspective suggests that a wage hike would reduce employment, careful empirical research proves otherwise.

Unfortunately for Brodwin and the Obama administration, their rhetoric doesn’t match reality.

Douglas Elmendorf, the director of the CBO and a Democrat appointee, said as much in response to the administration’s criticism of his agency’s estimate of half a million lost jobs. Calling the estimate a reflection of the “latest thinking” in economics, he pointed critics to a “balanced” reading of the economic literature. In other words, this isn’t Econ 101: The CBO reviewed and relied on roughly 60 different empirical studies in formulating its estimate of the impact of $10.10, and still came to the conclusion that lost jobs were likely.

Proponents of a higher minimum wage point to a handful of studies that find no jobs effect to make their case. And it’s true, these studies do exist — but they’re in the extreme minority. Two economists from the Federal Reserve Board and the University of California-Irvine took the time to read all of the most credible research on the minimum wage from the past 20 years, and found an overwhelming 85 percent of it pointed to a decline in employment.

Defending his point of view, Brodwin argued that employers had little ability to cut staf f —“you can’t replace the cashier with a robot.” Perhaps Brodwin is one of the few Americans who hasn’t used a self-check-out lane at the grocery store, gotten an airplane boarding pass or pumped their own gas in the last decade, but his statement is plainly wrong. In fact, high minimum wage countries in Western Europe have seen fast food companies like McDonald’s replace employees with touch screen alternatives. It’s now possible to go a step further and automate jobs in the kitchen, as well. Momentum Machines has invented a burger-making robot that replaces three full-time staff.

If the president and Brodwin truly want to help the poor, there are better alternatives. Even the president’s appointed Council of Economic Advisers acknowledges that a minimum wage increase isn’t well targeted to poor families. Combined with the lost jobs predicted by the CBO, this suggests that a new wage mandate should be shelved in favor of targeted tax credits that reduce poverty without reducing employment.

Sincerely,

Michael Saltsman
Research Director
Employment Policies Institute