Yesterday, the Congressional Budget Office released a report that estimated the effects of an increase in the minimum wage. There were two scenarios: Raising the minimum wage to $10.10 an hour by 2016 and then adjusting annually for inflation, or raising the minimum wage to $9.00 an hour by 2016 with no adjustments for inflation.
The media has reported on the more aggressive first option, which the CBO predicts would lift 900,000 people out of poverty by 2016. Of course, they also predict that 500,000 jobs would be eliminated, but this poses no real concern to those who advocate for a “living wage” at any cost. After all, it will reduce income inequality, they say, and allow workers to make ends meet.
But I would venture to guess that few people bother to read the CBO report. If they did, they would realize that the minimum wage is not all it is cracked up to be when it comes to equalizing living standards among households. Consider the $10.10 option:
- Indeed, the CBO reports that 900,000 people (of the estimated 45 million) who are now below the Federal Poverty Level would be above it by 2016. These individuals would accrue about $5 billion in real income; the average family income would increase by about 2.8 percent.
- But families whose income is between one and three times the Federal Poverty Level would receive even more, about $12 billion on net. An additional $2 billion would accrue to families whose income is between three and six times the Federal Poverty Level. A family in these categories would seen an average increase in their income of 2.1 percent. (By the way, a family of four that is at 300 percent of the FPL earns $70,650. At 600 percent of the FPL their income would be $141,300.)
- Real incomes would decrease by about 0.4 percent for families earning six or more times the Federal Poverty Level due to transitional unemployment and reduced business profits. (That will teach those six-figure income households, eh?)
So for equality lovers, a minimum age increase would ostensibly narrow the gap between the working poor and high income earners. But did I mention that the majority of these dollars would go to families not living in poverty at all?
Also consider the fact that if 500,000 jobs are lost (and CBO estimates it could be less than that or as many as 1 million), the minimum wage as the great equalizer would be mitigated by this number of new jobless people earning zero annual income. I personally have a more optimistic outlook on the jobs number. I believe that some of the 500,000 lost jobs will eventually become high-skilled, technical jobs. Why? Because industries such as hospitality, fast food and retail, that previously relied on lower-skilled workers will turn to automation. It will require highly skilled engineers, software designers and programmers to produce and service robots and computers that make French fries, check guests in at a hotel, and take your dry cleaning. If you think I am off my rocker, look around at all of the services where the friendly, smiling face has been replaced by the cold, steel machine with the monotone voice.
And what will all of this do to help the low-skilled worker and mitigate income inequality? Not a dang thing.