$10.10 wins

By Ben Walsh
February 19, 2014

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

President Obama has made increasing the minimum wage a centerpiece of his push to address income inequality. The Congressional Budget Office has now weighed in on the economic consequences of that proposal.

The CBO estimates that raising the federal minimum wage to $10.10 (a level the President reportedly supports) would increase wages for 16 million Americans, lift 900,000 people out of poverty — and cost the economy 500,000 jobs.

Josh Barro isn’t perturbed by the idea that a higher minimum wage would put some people out of work. If a wage hike isn’t putting someone out of work, he writes, it’s not a big enough. The point is to make sure the positives (wages increased) sufficiently offset the negative (decreased employment): “the minimum wage trade-off presented by CBO looks awfully favorable. For every person put out of work by the minimum wage increase, more than 30 will see rises in income, often on the order of several dollars an hour”.

To Tim Fernholz, what gets lost in the political debate is that economic literature on increased minimum wages suggests that it both fights poverty and reduces the number of low-wage jobs. Mike Konczal has a good review of two recent studies. Both studies attempt to quantify the effect on poverty of a 10% increase in the minimum wage; one finds that it is reduced by 2.4%, while the other sees poverty reduction of 2.9%.

Ezra Klein thinks the CBO’s conclusions are likely right, but not necessarily new. The analysis isn’t really even what the CBO does best, he says, which is analyze the effects of little-studied legislation. Konczal says the report relies on speculation that “goes in a direction that is, to a surprising extent, in tune with Republican ideology… the CBO’s methodology is weighed to overstate the impact of a $10.10 minimum wage on jobs, while also understating the benefits”.

Tyler Cowen thinks the bottom line is that “we should not have a major party promoting, as a centerpiece initiative and for perceived electoral gain, a law that might put half a million vulnerable people out of work, and that during a slow labor market”.

As an alternative, Larry Summers, James Pethokoukis, Dylan Matthews and others have suggested increasing the Earned Income Tax Credit, a federal tax refund for low to moderate income workers. Not that it’s necessarily an either/or proposition: Arindrajit Dube says that “for some people, the presence of EITC acts as a multiplier for a hike in the minimum wage… these two policies may complement each other”.

Meanwhile, some workers are taking matters into their own hands and employing a kind of minimum-wage arbitrage: commuting across state lines from Idaho to Oregon to earn an extra $1.85 an hour. — Ben Walsh

On to today’s links:

Cephalopods
My Goldman Sachs PTSD (and why I’m grateful) – Bethany McLean

Revolving Door
Does Comcast already own Washington? – John Cassidy

Remuneration
Google’s chairman got a pay package more than five times bigger than Jamie Dimon’s – Steven Davidoff

Growth Industries
Candy Crush’s parent company doesn’t want your money but will take it anyway – Matt Levine

Right On
There’s more to life than economic activity – Matt Ygelsias

Depressing
By international standards, the post-crisis US recovery is actually quite rosy – Zachary Goldfarb

Good News
The 2009 stimulus kept 6.9 million Americans out of poverty in 2010 – Center for Budget and Policy Priorities

Alpha
“Foreigners were net sellers of $40.2 billion of American stocks in 2013″ – Floyd Norris

Servicey
The best time to buy a flight to Europe? 50 days before departure – Quartz
A bookmarklet that reverse engineers BuzzFeed quizzes – BuzzCheat

It’s Academic
Brilliant blunders: the scientific value of incorrect theories – NY Review of Books

Old Normal
“A separate network, set apart from foot and vehicle traffic, solely for bicycles” – Green Lane

Data Points
What’s in a story? A 2,706% increase in value, among other things – Inc.

EU Mess
Greece just posted its first current account surplus in history – Joe Weisenthal

Just an FYI
“People tend to specialize in what they’re worst at” – The Guardian

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/