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Even Economists Cited By The CBO Disagree With Its Minimum Wage Report

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Republicans opposed to a minimum wage hike got more fodder for their case Tuesday when the Congressional Budget Office released a report stating that a $10.10 minimum wage could cost the economy about 500,000 jobs. But some economists say that estimate may be overblown, and at least three whose research was cited in the report are now questioning that figure.

In a blog published by ThinkProgress on Thursday, Michael Reich, director of University of California-Berkeley's Institute for Research on Labor, argues that the CBO doesn't clearly explain how it came up with the 500,000 estimate. In his reading, it seems the budget analysts relied too heavily on studies "with methodological flaws" that found a higher minimum wage to be a job killer.

"They rely on the research literature, and the way they rely on the research literature is they say, 'Well, there are all these estimates out there' and then they somehow synthesize those estimates to one number," Reich told HuffPost. "In my view, they used numbers that were too high, based on what the research actually says."

Arindrajit Dube, an economist at the University of Massachusetts-Amherst, said the CBO "put their thumb on the scale a little bit."

"The CBO report puts too much weight on lower quality studies," said Dube, whose research is also cited by the CBO.

According to the CBO report, its analysts drew on previous research to come up with an "elasticity figure," a wonky term for the percentage change in employment that would result from a percentage change in the minimum wage. The elasticity figure they chose is what led them to the 500,000 estimate.

"What they've done is taken a bunch of papers from me and others, and they're using those employment elasticities that say that there are or there aren't employment effects," said Sylvia Allegretto, another economist at the Berkeley Institute. "We don't know exactly what they did, but they've somehow averaged the results so they've basically baked in that there would be a negative effect."

CBO Director Douglas Elmendorf on Wednesday defended his agency's analysis, telling reporters at a breakfast, "I want to be clear that our analysis on the effects of raising the minimum wage is completely consistent with the latest thinking in the economic profession," according to Time.

The budget office had a lot of research from which to choose. The effect of a minimum wage increase on employment is one of the most hotly debated topics in economic literature, and the estimates cited by lawmakers and pundits will often diverge on partisan lines. On Wednesday, a spokesman for House Speaker John Boehner (R-Ohio) told Bloomberg that the CBO's report "confirms what we've long known." The White House's top economists wrote in a blog post Wednesday that "the bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent."

Last month left-leaning Economic Policy Institute circulated a letter signed by 600 economists that argues essentially the same thing. The chart below, taken from a White House report released last week, shows that the bulk of the literature finds that raising the minimum wage has little to no effect on employment.

study

Reich and Allegretto are firmly in that camp. Their research, which is cited in the recent CBO report, found that previous literature indicating a higher minimum wage cost jobs had relied on national data that didn't differentiate between states that raised the minimum wage and those that didn't. Reich's studies use county data instead, and have likewise found a higher minimum wage has virtually no negative employment effect.

"The research I've done -- and quite a few other people now -- indicates that there are problems with earlier estimates," Reich said. "My view is that we have refuted the earlier studies. The CBO cites our papers where we do these things, but it didn't seem to make use of that information."

The budget office acknowledges that its estimates may not be accurate in the long term. "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 1.0 million workers," the budget analysts wrote in the report.

Even if one assumes that the CBO's projections for employment loss are correct, the report indicates that the benefits of a $10.10 minimum wage outweigh the costs. The hike would lift about 900,000 people out of poverty, the budget office estimates. In addition, a minimum wage hike would directly benefit 16.5 million workers by giving them a raise, the report found.

"If you take the half a million that everybody is talking about, that's still a very small number compared to the number of people that are going to be positively affected," Allegretto said. "But we don't believe that there are these disemployment effects."

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