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

The Huffington Post, February 19, 2014

by Jillian Berman

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.

 

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