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CBO report estimates job losses from wage hike, even as Walmart signals possible shift

Published: Friday, Feb. 21 2014 2:50 p.m. MST

A women chants her slogans while marching along the street during a protest against Walmart on Thursday, Sept. 5, 2013, in Los Angeles. In the wake of the CBO report predicting job losses, Walmart is considering throwing its support behind a minimum wage hike.

Jae C. Hong, Associated Press

The always murky economics of a minimum wage hike became more muddled this week when the Congressional Budget Office on Tuesday projected that 500,000 people might lost their jobs if Congress raises the minimum wage to $10.10. On the plus side, the CBO found that the wage hike would lift about 900,000 out of poverty.

Whether or not the economics of the wage hike make sense, the politics are clearly on the side of raising the minimum. Polls have repeatedly verified that large majorities favor higher minimums, including one poll in December by Quinnipiac University that found a majority of Republicans in support.

Corporations are also feeling pressure. Wednesday, Bloomberg reported that Walmart is considering throwing its support behind a minimum wage hike — a potential major breach in the wall of opposition from low-wage employers. The tentative shift from Walmart came less than a week after California-based minimum wage activist Ron Unz had called the company out in a Forbes piece arguing that the chain would benefit form a higher minimum wage.

Walmart spokesman David Tovar told Bloomberg that the company thought that their customers might actually have more to spend at the store if wages went up: “That’s something we’re looking at,” he said, adding that they have not yet decided.

Unz applauded the Walmart move in an interview this week, and he also downplayed the CBO’s job loss projections. “For every job lost, there are probably around 40-50 who would get a major wage increase,” said the California Republican now leading the fight to raise the minimum wage in his home state. By late in the week, however, Walmart was backtracking.

Still, Unz is pleased with the momentary breach in the wall.

“Only people directly affected by it are the working poor,” Unz said. “Most of them would get huge wage increases. A few would lose their jobs, but the working poor support a minimum wage increase by 95 percent. Why should others block it if they are not the ones directly affected?”

Two Pinocchios

The CBO has a built a reputation for straight-shooting nonpartisan analysis that often frustrates one side or the other. During the 2010 debate over Obamacare, CBO projections played a key role in persuading doubters that the president’s health care plan, if implemented strictly as written, would reduce deficits rather than add to them. A couple of weeks ago, another CBO report created a stir by projecting that Obamacare would push more than two million workers out of the workforce.

The finding that a steep hike in minimum wage would cause job losses did not surprise most economists, but it did put the White House on defense. Back in December, President Obama said, “Some say it actually hurts low-wage workers — businesses will be less likely to hire them. But there’s no solid evidence that a higher minimum wage costs jobs.”

This prompted fact checker Glenn Kessler at The Washington Post to award the president two “Pinocchios.” Kessler noted that economists still debate how significant job losses would be, but that few question they exist. Kessler noted that Paul Krugman at the New York Times recently wrote that “even most liberal economists would, I suspect, agree that setting a minimum wage of, say, $20 an hour would create a lot of problems."

The real question, Kessler says, is not whether jobs will be lost, but rather how high the “disemployment” effect will be if you set the wage at a given rate — and whether that job loss is worth the benefits of higher wages for the rest. Krugman argues that the job losses are easily swamped by the benefits.

Targeting poverty?

But not everyone agrees. “The real goal,” argued Arpana Mathur, an economist at the American Enterprise Institute, “is to get people out of poverty. But the number of people in poverty are a small fraction of those earning the minimum wage.”

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