“Minimum Truth”: The Hollow Argument Against Higher Wages
In the midst of a crucial political debate that plainly favored proponents of a higher minimum wage, the Congressional Budget Office dropped a bombshell headline this week. Increasing the minimum to $10.10 an hour – as demanded by President Obama and Democrats on Capitol Hill – will “cost 500,000 jobs.” At a moment when employment still lags badly, that assertion was potentially devastating.
Almost lost in much of the predictable media coverage was the CBO’s estimate that a minimum-wage increase would lift at least 900,000 workers and their families out of poverty – and boost incomes for at least 15 million more.
But as top economists have repeatedly pointed out, such damning employment numbers are fuzzy and unreliable, while the CBO’s poverty numbers probably underestimated the positive impact of a higher minimum.
Moreover, those 500,000-jobs-lost headlines were highly misleading, with the strong implication that more than half a million actual people would be laid off — which is wrong. In fact, the CBO number is meant to estimate the number of jobs that employers might not fill when workers leave, or the number of jobs that employers might not create as quickly if they must pay a higher wage. It doesn’t mean that people will lose their current jobs, but those people seeking low-wage jobs may have to look slightly longer to find them.
What about that nice round number of 500,000? Naturally it is rounded to the nearest hundred thousand, but more to the point is that the headlined number is simply the midpoint of an estimated range from “slight impact” or zero lost jobs on the low end to one million on the high end.
Such a million-job spread represents substantial uncertainty. Skeptics may consider the uncertainty even greater because the CBO report relied heavily on disputed assumptions by conservative economists – and diverged from the consensus of top US economists, who expect that moderate increases have a vanishingly small impact on employment.
But even if 500,000 fewer jobs are created in the short run, that somewhat notional cost must be weighed against the indisputable benefit to low-wage workers. As economist Dean Baker explains:
With 25 million people projected to be in the pool of beneficiaries from a higher minimum wage, this means that we can expect affected workers to put in on average about 2 percent fewer hours a year. However when they do work, those at the bottom will see a 39.3 percent increase in pay.
While overstating the negative effect of raising the minimum wage on jobs, the CBO study understated the positive effect on families living in poverty. Its estimate of 900,000 families lifted above the poverty line is based on computer simulations. But historical research into the effect of previous minimum-wage increases suggest a much more robust benefit to the working poor.
According to University of Massachusetts economist Arindrajit Dube, who has studied the effects of minimum-wage increases in recent decades, the impact on poverty is much more powerful than the CBO suggests. He quotes a study by the Hamilton Project, a centrist economic think-tank based at the Brookings Institution, which suggests that as many as 35 million families will benefit from an increase to $10.10 an hour due to “spillover effects” raising income among workers who already make slightly more than the minimum.
Dube’s studies of the historical effect of past minimum-wage increases indicate that raising the federal minimum to $10.10 would lift somewhere between 4.6 and 6 million households above the poverty line.
Raising the minimum wage will also reduce profiteering by large, highly profitable employers like Walmart and McDonalds, whose workers rely on government benefits – such as the Earned Income Tax Credit and food stamps – to supplement inadequate paychecks. Survey after survey reflects the strong public appetite for higher wages at the low end. But popular approval is not the only way that companies can actually benefit from improving workers’ earnings and livelihoods.
The Gap clothing chain just announced that its workers will soon receive better pay to bring them above the current federal minimum. Announcing that his company will voluntarily raise its lowest-paid workers to $9 this year and $10 next year, Gap CEO Glenn Murphy said he regards the expense as a “strategic investment” that would pay for itself many times over in better productivity and morale (as well as lower job turnover and training costs).
When the clear social benefits of raising wages are contrasted with the dubious warnings of lost jobs, there is no real argument. If we intend to address poverty and reduce inequality, higher wages across the workforce are imperative – but especially at the bottom.
By: Joe Conason, The National Memo, February 21, 2014
“Misrepresenting The Facts”: Obamacare Critics Still Tell Just One Side Of The Jobs Story
The economics profession is famous for its balance—as the joke goes, we always need more hands to express all the caveats to our conclusions. (“On the other hand … and on the other hand … and on the other hand…”) That is why arguments about last week’s report from the Congressional Budget Office have become so frustrating, even when accomplished scholars are the ones doing the arguing. Instead of addressing a subtle and complicated issue with (at least!) two sides, the law’s critics keep turning it into a single-sided moral diatribe about the work ethic and the supposed damage Obamacare is doing to it. A perfect illustration is a recent New York Times Economix column by Casey Mulligan, a University of Chicago economist whose own research has become part of the debate — and who, in the course of dismissing the Affordable Care Act’s virtues, took a swipe at me, as well.
The genesis of Mulligan’s article is the surprisingly famous appendix to that CBO report—the part where the agency predicts that the Affordable Care Act will be associated with a reduction in the workforce of the U.S. The bottom line of that report is that the ACA will result in 2 million fewer jobs by 2017. And, as is typical of the generally excellent CBO studies, this report is careful in describing the genesis of this conclusion. The CBO highlights that there are essentially two different sources of the reduced labor supply. The first is voluntary job leaving by those who have been “locked” into their jobs by fear of losing health insurance. Some of these individuals would happily turn down their wage to be retired or caring for children, but were previously unable to do so because they had no other insurance options; now they are able to pursue those preferred approaches. The second is those who are deterred from working by higher marginal tax rates. In particular, since the Affordable Care Act’s financial assistance phases out as income rises, the incentive to work more also declines at higher incomes. In other words, the law’s financial assistance is an implicit tax on earnings—and the tax gets higher as people earn more.
Mulligan’s article, and a number of his recent papers, are focused on the effects of these tax rates. He performs detailed computations which show that, for some individuals, that the tax rates can be quite high. In his recent post, Mulligan implies that these high tax rates are the reason for the CBO conclusions on reduced labor market participation. He dismisses the job lock effects as “a completely different issue…and far less prevalent.” He even cites the sentence on page 119-120 which ends with a footnote citing his work as evidence that CBO’s report is focused on high tax rates.
But Mulligan doesn’t mention that, in the very next paragraph, CBO dismisses his argument. According to the report, his suggested effect doesn’t impact labor supply, but rather health insurance offering (which they model elsewhere). Mulligan claims that CBO was “aware of instances of 100% tax rates,” which may be true, but the entire Appendix doesn’t mention this fact even once. It is not surprising that, unlike Mulligan, CBO economists did not harp on examples of 100% tax rates. They are uninterested in calculations that highlight extreme cases. They are more interested in modeling the overall impact on the workforce. Showing that tax rates might be high for a small number of workers is not as important as assessing what happens to aggregate labor supply.
More important, though, is Mulligan’s casual dismissal of the other reason why the labor market is shrinking, which was highlighted by a broad array of analysts. The CBO explicitly states that at least some of the labor supply reduction that they measure is from loosening “job lock,” and they never say anything which would lead the reader to conclude that job lock concerns are “far less prevalent” as an issue. That is simply Mulligan’s editorializing with no substantive basis.
Moreover, the CBO also includes a lengthy discussion of the potential positive productivity effects of loosening job lock. Since the CBO is cautious, and there is no consensus evidence on the productivity effects of job lock, they do not provide any estimates of the countervailing benefits of loosening job lock in their labor supply modeling. But at least they don’t ignore the topic, as Mulligan’s article would lead you to believe.
Mulligan says that the Obama administration “spun the high marginal tax rates as a policy achievement,” when, in fact, the post he cites is about job lock—not implicit marginal tax rates. Mulligan then goes on to misuse a quote of mine (as well as of Paul Krugman’s) that implies that we applaud the reduction in labor supply due to high marginal tax rates. Nothing could be further from the truth. My quote came from a Los Angeles Times opinion column. In it, I laid out clearly both of the effects documented by the CBO. Since this was, after all, an opinion piece, I also offered my view that—on balance—the CBO report was positive, because the benefits of the first labor supply effect (ending job lock) would be larger than the costs of the second (the implicit marginal rates). But I don’t claim that I know for sure that this is the case. Krugman’s quote came as part of a series of posts he wrote, describing the economics case for allowing those who are better off not working to leave their jobs rather than to continue to work just to get health insurance. Krugman also gave a more balanced view, acknowledging the downside of implicit marginal tax rates but arguing that, in the end, the upsides were greater.
Mulligan—like so many of the law’s critics, in and out of the economics profession—gives a more one-sided view. He talks only about the marginal tax rates. A reader who relied exclusively on his column would have no idea the CBO cited multiple reasons for the shrinking workforce—and that some of these reasons were utterly defensible. Ironically, while making a surprisingly moral case against examples of 100% tax rates, he ignores the moral case for leveling the playing field by breaking the link between work and insurance, so that workers are not chained to jobs where the value of their compensation is well below their disutility of working.
The Affordable Care Act, like any major reform, has its virtues and its flaws. The best economists, like the best public officials, are the ones who deal with both.
By: Jonathan Gruber, The New Republic, February 13, 2014
“Republicans Are Losing All Credibility On ObamaCare”: At Some Point, Voters Are Going To Stop Paying Attention To Their Scare Tactics
Even before President Obama signed the Affordable Care Act into law, GOP critics assailed it as a socialist, job-killing overreach indicative of a government run amok. In the years since, we’ve seen no shortage of scare-mongering and hand-wringing about how the law would harm Americans and bring the republic to an ignominious end.
Yet as ObamaCare gradually went into effect, reality began to undercut the thrust of that argument. Remember those terrifying death panels Sarah Palin warned us about? And over the past few months in particular, facts have shot down a handful of the more apocalyptic claims about the law.
In the most recent instance, a report last week from the Congressional Budget Office estimated that ObamaCare would trim the labor force by 2 million full-time jobs by 2017, and by 2.5 million come 2024. Critics seized on that as proof that the law would indeed spook businesses and stifle job growth.
What the report actually showed, though, was not a dearth of jobs, but a dearth of labor. Incentives in ObamaCare that make insurance cheaper and easier to obtain, the report suggested, would encourage some people to retire earlier or work less, thus shrinking the labor pool.
With spin and misinformation flying about, the CBO on Monday made that point clear.
“Because the longer-term reduction in work is expected to come almost entirely from a decline in the amount of labor that workers choose to supply in response to the changes in their incentives, we do not think it is accurate to say that the reduction stems from people “losing” their jobs,” CBO head Doug Elmendorf wrote.
So much for that talking point.
The same CBO report also undercut another meme on the right, that ObamaCare contains a big bailout for insurance companies.
The scuttlebutt involves the risk corridors built into the law, which cap how much insurance companies can make or lose in their first three years on the exchange marketplace. (You can read a more thorough explanation on risk corridors here.) Since taxpayers could theoretically be on the hook for covering the losses of flopping companies, a cadre of Republicans, led by Sen. Marco Rubio (R-Fla.), labeled the provision a “bailout” and vowed to repeal it.
As it turns out, the CBO found that insurance companies would receive $8 billion — but pay back double to the government. In other words, the supposed bailout — which was really just standard actuarial practice to begin with, and not a literal bailout — would actually save the government billions of dollars.
Then there’s the zombie claim that lawmakers and their staffs are exempt from ObamaCare. Last month, Sen. Ron Johnson (R-Wis.) said he was filing suit over that boondoggle, arguing the administration had “exceeded its legal authority” in “arranging for me and other members of Congress and their staffs to receive benefits intentionally ruled out by” ObamaCare.
In truth, the law does offer a unique subsidy to Capitol Hill employees to offset the cost of obtaining insurance through the exchanges. But lawmakers and staffers only qualified for that subsidy because the law, via an attempted GOP poison pill amendment, stripped them of federally subsidized coverage and forced them onto the exchanges in the first place. Even National Review thoroughly debunked the exemption claim.
Republicans also warned that Healthcare.gov’s early glitches exposed the entire law as an unworkable train wreck. Writing in The Hill, Rep. Bill Johnson (R-Ohio) called the problems “catastrophic,” and likened the site to cooked eggs: “You see, you can’t recook eggs!”
Following a massive IT effort though, the site is now running much smoother, and enrollments are surging as a result.
That brings up another ObamaCare bogeyman: the dreaded death spiral.
ObamaCare needs a bunch of young enrollees to offset the cost of enrolling older folks. If not enough young people sign up, premiums for everyone else could spike and the system could crash.
Yet despite the best efforts from some on the right to convince young adults not to enroll — one ad campaign featured a creepy Uncle Sam sexually assaulting young patients — the death spiral, too, was more myth than reality.
Enrollment among young adults has indeed been lower than the administration’s target, but it’s expected to surge as the enrollment deadline nears. And even if the current demographic breakdown remains unchanged, an analysis from the Kaiser Family Foundation determined the consequences “are not as great as conventional wisdom might suggest.” In a worst-case scenario, the report found, the effect on premiums from an unbalanced pool of enrollees would still be “well below the level that would trigger a ‘death spiral.'”
Phew. That’s a lot of debunked arguments. Next thing you know, critics will be trying to falsely claim the law won’t help enough people get coverage. Oh, wait.
Now, the GOP was right to be skeptical of Obama’s claim that everyone could keep their health insurance under ObamaCare. That turned out to not be the case.
But the party’s overall success rate on loaded ObamaCare allegations is terrible, and is only getting worse. The danger is that at some point, voters are going to stop paying attention.
By: Jon Terbush, The Week, February 11, 2014
“Liberals, Conservatives, And The Meaning Of Work”: Ideological Republicans Do Not Understand What It Means To Be Human
It appears that those who talk so much about “economic freedom” aren’t too happy when ordinary people have more choices.
It isn’t often that we spend an entire week talking about a Congressional Budget Office report and its implications, but the one currently occupying Washington’s attention—about the effects of the Affordable Care Act on the labor force—is actually pretty revealing. To catch you up, the CBO said that due to the fact that under the ACA people are no longer tied to jobs they’d prefer to leave because they can’t get health insurance on the individual market (“job lock”), many will do things like retire early, take time off to stay at home with kids, or quit and start businesses. They projected that these departures will add up to the equivalent of 2 to 2.5 million full-time positions. At first, Republicans cried “Obamacare will kill 2 million jobs!”, but when everyone, including the CBO’s director, said that was a blatantly misleading reading of what the report actually said, they changed their tune. And here’s where it gets interesting, because this debate is getting to the heart of what work means, what freedom is—and for whom—and just what kind of an economy we want to have.
Paul Ryan may have been the first Republican to articulate the new attack based on the CBO’s report, when in a hearing on Wendnesday he lamented that fewer Americans would “get on the ladder of life, to begin working, getting the dignity of work, getting more opportunities, rising the income, joining the middle class.” The argument was quickly picked up by others. “I think any law you pass that discourages people from working can’t be a good idea. Why would we want to do that? ” asked Senator Roy Blunt on Fox News Sunday. Representative Tom Cole said the same thing on This Week: “Anything that discourages work—and that’s essentially what the CBO found, that this discourages some people from working, not a good thing at a time when the economy’s still struggling.” Representative Trey Gowdy said, “What the liberals and the Democrats want you to believe is, ‘Well, but you’ll have time to write poetry.’ Well, that’s great until you try and buy your grandkid a birthday present or you try and pay the heating bill.”
You might read that and wonder, “Just how dumb do they think people are?” If you’re, say, a 63-year-old who has enough savings to retire but doesn’t want to wait until you’re 65 and can get Medicare, the fact that you can now buy private insurance doesn’t mean you’ve failed to “get on the ladder of life.” Nobody is going to say, “Wait—I can buy insurance now, even though I once had cancer? Woo-hoo, no more work for me, ever!”
But to be honest, I’m a little torn about how far to go in interpreting the arguments Republicans are making. On one hand, it’s obvious that they are saying what they are because they feel obligated to take any and every opportunity to cry that Obamacare is destroying America, and they’ll do that no matter what the facts are. If the CBO report had said that the ACA had no effect at all on job lock, they’d probably be arguing exactly the opposite of what they are now, that it was diminishing Americans’ freedom by keeping them in jobs they hate.
On the other hand, it’s hard to say that at the moment they’re not being candid about what they really believe. Job lock never really bothered them before, and I think that’s because it’s a case of the market diminishing people’s freedom. Conservatives get very upset when the government diminishes freedom, but if the market does it, well them’s the breaks. If you got screwed by market forces, then that just means you’re a loser, and they’re the party of winners. David Atkins may go a little far here, but he’s right to point to a basic difference in how people of different ideologies view what it means to be human:
It is not an inaccurate or extreme statement to declare that ideological Republicans do not understand what it means to be human. They view human beings as economic units to be plugged at their lowest possible price into a maximally efficient market that provides the greatest possible returns on investment to the wealthy few, with any resulting human resentment and misery dulled by humility before a pleasure-fearing angry God promising rewards to the obedient in the hereafter. It is a dark, meager, shriveled and cramped vision of humanity.
I’d modify that to say that while most conservatives may view lives devoted to non-money-making endeavors as frivolous, it’s only when certain people take advantage of the kind of freedom we’re talking about that they get genuinely perturbed. They aren’t campaigning for a higher estate tax so the Paris Hiltons of the world will be forced to get jobs and contribute meaningfully to society instead of laying about all day spending their forebears’ money. It’s the idea of someone of modest means having the ability to organize their lives to work less that they find morally intolerable.
But conservatives should be quite satisfied with the way the American economy is organized, particularly compared to our peer nations. Unions are a desiccated husk of what they once were, leaving workers with little or no power. Wages are stagnant and benefits are shrinking, while corporate profits and the share of wealth held by those at the top are at or near all-time highs. Our safety net is, by international standards, quite meager. The United States is the only advanced industrialized democracy that does not mandate by law that everyone get paid vacation. If you’re lucky enough to have it, chances are you get two weeks at most. The European Union, by contrast, requires four weeks of paid vacation for all workers, and some countries in Europe go beyond even that.
In other words, this is the economy conservatives built. And yet when just one area of uncertainty is removed for ordinary people—the fear that you’ll lose your health coverage if you leave your job or work fewer hours—they begin delivering lectures to the lesser folk about “the dignity of work.” This is from a bunch of rich white guys who spend their days hobnobbing with other rich white guys. What I’d suggest is that they ask the people who clean their toilets about how much dignity and fulfillment they derive from their work, and then ask them whether they’d feel less dignified if they knew they could leave their jobs and still get health coverage. For a group of people who spend so much time talking about “economic freedom,” conservatives seem awfully hesitant to let too many people taste it.
In the real economy—not the economy of a Republican congressman’s imagining, where the only perspective that matters is that of the guy in the corner office, but the real economy—bosses are sometimes kind and sometimes beastly, compensation is sometimes fair and sometimes stingy, and for most people, work is the thing you do so you can carve out a little bit of time to do the things you’d rather be doing. It would be a wonderful world if everyone drew limitless fulfillment, engagement, and purpose from their work. But this is not that world.
Unfortunately, government can’t make everyone love their jobs so much they leap out of bed in the morning. But what it can do is stop the gross injustices, keep the ruthless from harming the helpless, soften the market’s cruelties and give people at least a chance to reach the kind of lives they want. Is that too much to ask?
By: Paul Waldman, Contributing Editor, The American Prospect, February 10, 2014
“Something To Celebrate”: Affordable Care Act Gives Workers Freedom, Republicans Enraged
Since I wrote about postal banking this morning, I’ve decided to continue the day’s shameless, lowest-common-denominator clickbaiting by talking about a new Congressional Budget Office report and the Affordable Care Act. Hang on to your hats.
With all the hype of a new Beyonce album, the CBO dropped its latest report on government finances and other related topics, which includes the news that the deficit has dropped to its lowest level since Barack Obama took office. This may prove inconvenient for Republicans still invested in fomenting deficit panic, but they’ll be helped by the fact that most Americans actually believe the deficit has gone up in the Obama years. According to a new poll from the Huffington Post, not only do 54 percent of people think so, but 85 percent (!) of Republicans think so.
In any case, the part of the CBO’s report that’s getting more attention is their projection that as a result of the ACA, the labor force will be reduced by 2 million in 2017, rising to 2.5 million in 2024. Unsurprisingly, Republicans rushed to the trumpets to shout that “Obamacare is going to cost 2.5 million jobs!!!” even though that’s not actually what the CBO said. Even news organizations who ought to know better made the mistake; earlier today, a headline at the Washington Post‘s web site read, “CBO: Health Law to Mean 2 Million Fewer Jobs” (it has since been corrected to read, “CBO: Health Law to Mean 2 Million Fewer Workers”).
The important thing to understand about the reduction in the labor force is that this is exactly what was supposed to happen. When you eliminate “job lock,” where people who’d like to leave their jobs can’t because if they do they won’t have health insurance, a certain number of people are going to take advantage of their newfound mobility. In some cases you might be able to construe it as a loss to the economy, say if a productive full-time worker cuts back to part time because she can. But in many cases it’s something to celebrate: an American exercising their freedom.
Imagine, for instance, a couple. The wife is a lawyer in private practice; the husband is an accountant at a large firm. Since she’s a cancer survivor, he has stayed at his job for the health insurance it provides, because if he didn’t they wouldn’t have been able to get coverage, what with her pre-existing condition. But now, he can make a different choice. And it happens that her business is doing pretty well, and he’d rather stay home with the kids and work on his novel than be an accountant. So he has the freedom to quit his job, and they can still get covered. When he does so, he’s no longer in the labor force. But that doesn’t mean there’s one fewer job in the economy. His firm will just hire someone else.
That isn’t to say there will be zero net loss to the economy; without his income, the couple will probably spend less. But their children may also grow up happier and more well-adjusted, and who knows, he might write the next great young-adult dystopian fight-to-the-death trilogy with the extra time he has between 9 and 3 every day. These are good things.
That’s just one kind of person who leaves the labor force because of the ACA; there will also be lots of people who leave jobs to start their own businesses, and some who decide to retire early because now they can. If people are making those decisions freely—just like people have the freedom to do in every other advanced economy in the world—it would be crazy to think of it as something to be lamented.
By: Paul Waldman, Contributing Editor, The American Prospect, February 4, 2014
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