Thursday, February 20, 2014

Context is everything

There has been some vigorous discussions about the Congressional Budget Office's claims that increasing the minimum wage would cost jobs.  But there really are two things to keep in mind. 

One, noted by Jon Chait, is that we don't seem to be worried about job losses in other contexts:
And yet the Congressional Budget Office, now brimming with conservative credibility, has spent the last five years issuing report after report assailing the Republican position. Republicans weeping for the half-million or so jobs that would be destroyed by a higher minimum wage would be shocked to learn that, according to the CBO, they have destroyed 200,000 jobs by blocking the extension of emergency unemployment benefits (which lift the incomes of destitute workers, creating higher demand). Likewise, the budget sequestration they have embraced as their cherished second-term Obama trophy has destroyed 900,000 jobs.
The other issue is that costs are being talked about in the absence of benefits:

As economic policies go, that's not bad. In the real world, there's no such thing as a policy that has benefits with zero costs. There are always compromises. In this case, in return for the small job losses, 16 million workers would get a direct wage increase; another 8 million would get an indirect wage increase; and nearly a million workers would be lifted out of poverty. That's about as good as it gets. 

The argument against the extensions of unemployment benefits is the cost to the deficit (or the need to increase taxes).   It is not a good plan to consider both costs and benefits for the policies that you do like, and not to consider benefits for the policies that you do like. On point is:


There is no policy I can think of that generates only benefits without any costs, and policy makers always have to weigh the two sides. In the case of the minimum wage, on the benefits side of ledger, the budget office shows that 16.5 million low-wage workers would directly get a much-needed pay increase at no cost to the federal budget.


Finally, the magic trump card of "innovation" can be considered.  The argument against increasing taxes is that it might reduce innovation by high performers.  Robert Downey Jr might make fewer movies, for example, as he might value his leisure time more.  I am not convinced by this argument, but at least there is some theory that links these two things (high taxes and innovation) together. 

However, with minimum wage you have the opposite problem.  Low wages are known to stifle innovation.  It is well accepted that one of the problems with slavery (in Rome, as a common example) was that the cheap labor made the returns on labor saving innovations small.  So making labor cost more could have the expected costs and benefits plus drive innovation.  And there is no tax increase to be considered. 

Now does this mean that this policy is a "no-brainer"?  No.  But it does mean that there really has to be a much deeper engagement with the pros and cons of such an argument. 

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