Sam Uretsky

Put Money in Right Pockets to Cure the Economy

When the Congressional Budget Office (CBO) analyzed the effect of an increase in the minimum wage to $10.10 per hour, the anticipated effects looked unfavorable: “Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3% ... As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1 million workers.” A smaller increase, raising the minimum wage in two steps to $9.00 would, best guess, cost 100,000 jobs, with a range of “very slight increase to -200,000 workers.”

If that wasn’t a slap in the face, the CBO went on to say: “many low-wage workers are not members of low-income families. Just 19% of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29% would accrue to families earning more than three times the poverty threshold, CBO estimates.” 

The CBO, in its own words, provides “Nonpartisan Analysis for the US Congress” and can be trusted to be honest. But, going by the rules of the game, it’s not creative. Elsewhere in the document they estimate that the increase in the minimum wage would raise 900,000 people above the poverty level. This is a fairly small gain considering that there are currently an estimated 45 million people living in poverty – and that’s official poverty, which is way below the comfort level. Because an increase in the bottom level would presumably lead to increases up the line, with those people currently making slightly above the minimum getting small increases, but might cut into the income of higher income families making up to six times the poverty level. 

The CBO also estimated the costs of an increase to the federal government. On one side, there would be a small increase in the costs of goods and services, but this would be balanced by an increase in tax receipts, and a decrease in the costs of social programs so that the conclusion is “the net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter. It is unclear whether the effect for the coming decade as a whole would be a small increase or a small decrease in budget deficits.”

What’s missing is a discussion of the impact of an increase in the minimum wage on the economy as a whole.  People making minimum wage spend everything they make.  Minimum wage workers can be roughly divided into two groups – there are the teen agers trying to make some extra money working part time, and there are the adults taking whatever jobs are available in a depressed economy. From the last holiday season, it seems that retailers targeting the teen sector, Abercrombie & Fitch, American Eagle Outfitters and Aéropostale, have been badly hurt by high unemployment and low wages among teens. An increase in the salaries of the teen agers would presumably improve sales at those stores. For families trying to get by at or near the poverty level, the extra money would presumably go to groceries. On Jan. 30, the Associated Press got national attention with a report that 50 elementary school children in Salt Lake City had their school lunches taken away because their parents owed money on their accounts. These were parents who could not afford the cost of federally subsidized meals. Bringing these families out of poverty would at least let them pay for a school lunch.

Technically, the recession has been over for years, but the recovery has been anemic. While a number of possible causes have been proposed, one that certainly applies is lack of demand. Some people still owe money on loans taken out during the housing bubble, and for those who stayed employed, the purchasing power of wages has stagnated. Then there is the inequality problem, and while productivity per worker has increased, most of the increase has benefited the top 1%. In 2012, the 1% saw their incomes rise 20% while the bottom 99 had only a 1% raise. But the super-rich, while they get the money, don’t spend it – they can’t spend it fast enough. The money can’t trickle down when it’s sitting in a vault. The only way to revive the economy is to put money in the hands of people who will keep the money moving and maintain demand.

The actual amounts of money discussed by the CBO seem small relative to the total federal budget, but it still represents money injected directly into the demand side, which is essential towards reviving the economy. Every bit helps.

Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email sdu01@mail.com.

From The Progressive Populist, April 1, 2014