On-the-Record Call by Jason Furman and Betsey Stevenson on the CBO Report on Minimum Wage
ON-THE-RECORD CONFERENCE CALL
COUNCIL OF ECONOMIC ADVISERS CHAIRMAN JASON FURMAN
AND CEA MEMBER BETSEY STEVENSON
ON THE CBO REPORT ON MINIMUM WAGE
3:56 P.M. EST
MR. LEHRICH: Hey, everybody. Thanks for joining us. It’s Matt Lehrich from the White House Press Office. I know all of you are interested in our reaction to the CBO report today on minimum wage. And so I’m here with Jason Furman and Betsey Stevenson from the Council of Economic Advisers here at the White House.
And with that, I will turn it over to Jason.
MR. FURMAN: Thank you so much. I think you have all probably seen our blog post on the new CBO report. But just to quickly recap on some of the points we make, the new CBO report finds that 16.5 million workers would get a raise from increasing the minimum wage to $10.10 per hour. It would help millions of hardworking families reduce poverty and increase overall wages going to lower-income and moderate-income households.
In all of that analysis, the CBO is essentially confirming the consensus view: the consensus on the magnitude of workers helped; the consensus on the impact on poverty; I think very important, the consensus that, overall, wages and earnings would go up for low-moderate and middle-income households, even taking into account CBO’s estimates of employment; and then the overall consensus on issues like only a small minority of beneficiaries are teenagers.
On the issue of employment, CBO’s central estimate is that raising the minimum wage to $10.10 per hour would lead to a 0.3 percent decrease in employment. And CBO acknowledges that the employment impact could be essentially zero. But even those estimates do not reflect the overall consensus view of economists who have said that the minimum wage would have little or no impact on employment. And in our blog post we cite a wide range of evidence to that respect, including drawing on 64 different empirical studies of the minimum wage and the impact that it has on employment.
And if you take all of that as a whole, what that research basically finds is that raising the minimum wage increases motivation. It reduces some of the distractions that impact productivity that are related to poverty. It reduces absenteeism. It increases retention for workers on the job, and reduces turnover. And that when you take all of that into account, the overall benefits for productivity, plus the other margins on which firms can adjust -- for example, reduced profits -- mean that there is substantial literature that has found little or no employment impact on the minimum wage. And, in fact, a number of the leading studies from 1994 through the present published in peer review journals have in fact found precisely that, which is no impact on employment.
So, in summary, overall the report very much does make the case for a policy that benefits more than 16.5 million workers, reduces poverty, raises incomes. In doing that, it confirms a consensus -- it goes outside the consensus view of economists when it comes to the impact of the minimum wage on employment.
Q What’s your view on how high the minimum wage would have to go before the employment effects would be significant? I mean, I assume the White House picked $10.10 for some reason. Why not go higher if the effects are negligible at $10.10?
MR. FURMAN: Sure. Josh, the research we have on the minimum wage is within the range of the types of minimum wages we’ve seen at the federal, state and local level over the past couple of decades; $10.10 is well within that range. In fact, it would still be below the peak value of the minimum wage in the late 1960s. It would be below the real value of the minimum wage you’ve seen in some other cases. So for that reason we’re comfortable that that value is within the range that had been considered by the economic studies that we’re drawing on, in terms of its impact on employment.
Q Republicans obviously have already jumped on this report. Are you concerned that these numbers, even spun like you’re spinning them, will make it harder to pass an increase?
MR. FURMAN: Look, I think -- I’ve seen an awful lot of tweets from Democrats as well pointing out how many workers are helped, the reductions in poverty, the increases in income and all the other incredibly positive things this report finds. And even this report finds that the very large majority of the workers that it discusses here are benefitting. And I think that explains why this has overall been a very popular issue for the public. And I don’t think this report changes those facts or will change the public perception.
But as an economist, there have been a lot of studies of the minimum wage. We’ve had a chance to review those studies. This is not a piece of original research into the impact of the minimum wage on employment, and I think a lot of economists who have looked at that literature would summarize it differently than CBO has summarized it here.
Q I just wanted to ask you about something you said earlier. You said that the CBO report, the findings do not reflect the overall consensus view of economists. This is something similar to what you said in the briefing room about the other recent CBO report, the 10-year outlook. Can you talk about why the CEA is coming out and directly refuting something that the CBO -- why are you criticizing the CBO’s report in this way?
MR. FURMAN: When I went to the briefing room on the CBO report, on the employment impact of the Affordable Care Act, the principal argument that I made in that briefing room was that the CBO analysis was not about businesses cutting jobs, it was about choices by workers. I also pointed out there were other factors that CBO hadn’t factored in. But the main argument -- I would say most of what I was pointing out was precisely that.
The next day or the day after, CBO came out with a blog post that said exactly what I had been saying, which is this was not about businesses killing jobs, it was about a labor supply effect. And CBO Director, Doug Elmendorf, both in testimony to his blog, said that in a lot of cases that choice would be, for example, someone nearing retirement that might choose to retire now in a way that they couldn’t before, and that would benefit them and their family.
So there, the main issue was the report was being misinterpreted, and the interpretation I put forward was completely consistent with the interpretation that Doug Elmendorf put forward.
In terms of today’s, sometimes you have to have respectful disagreement between economists. When it comes to a budget estimate, usually the only estimate you have is CBO. And they have all of the expertise on that topic, and that's why we take those budget estimates very seriously.
We take this seriously too, but there are also dozens and dozens of other studies on the minimum wage that we can draw on and infer from. And an economist like Larry Katz, who is one of the leading labor economist experts in the country at Harvard University, is the type of person and authority on the issue of the minimum wage that I would generally look to and draw on.
So I don't think this is the Council of Economic Advisers versus CBO. I think the last one was all about a misinterpretation where CBO agreed with us. Today there is some difference of opinion about how to read the literature on the employment effect of the minimum wage. But that's a difference of opinion that I think a lot of economists would have as well.
Q Hey, Jason. This is RealClearPolitics. We’re all down here in the basement. I have a quick question for you. Would it have been more advisable for CBO’s report to outline in greater depth the ambiguities in the numbers, which is what CBO did in 2006 under Mr. Marron? Or is there sufficient information here in terms of how CBO, without doing original research, came to the conclusions?
MR. FURMAN: I don't want to edit someone else’s report -- and I can't say the report did. This is important -- it did say that 0.3 percent decrease in employment, and that there was a range where that range included essentially no impact on employment and that there were possibilities of estimates beyond that, which presumably would be a small increase in employment.
So their report does convey the possibility that there would be no impact on employment. Their report also does confirm that the greater purchasing power of low-income workers would in the short run boost the economy, which is another effect they have there. But I don't think the way the headline number is being presented reflects the consensus view of economists on this topic.
Q Hey, Jason. Thanks for doing this. Two questions. One, can you explain how it is that -- or the basis for accepting some of CBO’s conclusions -- it seems like the ones that support your position -- but not accepting the conclusions that don't support your position when they're based on the same economic assumptions in the same report? And also, what are you doing at this point to promote minimum wage passage in Congress?
MR. FURMAN: On your first, we put out our own report -- CEA did last week -- and some of the things here are consistent with that and consistent with other research. For example, does raising the minimum wage reduce poverty? There have been a number of studies that have addressed that question and almost all of them have come to the answer yes. In that case, CBO is restating a consensus. When it comes to employment, I think they are not restating what I would understand the consensus to be, and that’s where I think there is some respectful disagreement on the emphasis and the certainty around that magnitude of employment loss.
Could you repeat your second question?
Q Yes, absolutely. Just what are you doing to promote or push for minimum wage passage in Congress? I’m in the Capitol right now and there is certainly -- there’s a lot of debate over how hard the administration and Democrats are --
MR. FURMAN: I mean, the President has -- there are others that could speak to that better than I could, but it certainly was something he emphasized in the State of the Union. He emphasized again when he recently signed the EO raising the pay of federal -- people that work for federal contractors. The Council of Economic Advisers put out a report last week, and it’s something you’ll continue to see the President and the administration more broadly pushing on.
Q Jason, I want to be clear -- are you saying is your argument that what is flawed about CBO’s conclusion on employment has to do with their failure to take into account the adjustments that you cite in the last paragraph of the statement that you and Betsey Stevenson put out -- namely lower turnover, lower absenteeism?
MS. STEVENSON: So, this is Betsey. I think that that’s exactly right. While they’re not completely clear in the report how they’re thinking about that, I suspect that they are not fully appreciating how much the literature has moved in terms of understanding the cost savings that you get from reduced turnover when you raise the wages for lower-wage workers, from reduced absenteeism and from increased productivity.
So I think one of the conceptually harder things to appreciate is that there are important spillover effects. So if the lower-wage workers become more productive, are less likely to quit, have lower absenteeism, that not only means that you’re getting more productivity out of them, but to the extent that they influence the productivity of their coworkers you can overall see greater productivity.
And I think that that understanding in the literature is one of the things that has moved the profession towards believing that the employment effects are zero, and I think that CBO didn’t fully appreciate that in their review.
Q And just if I could follow up, is that the White House view that if you had to put a number on the employment effects, it would be zero rather than the number that CBO comes up with?
MR. FURMAN: Our view is that -- and this is Jason again -- that zero is a perfectly reasonable estimate of the impact of the minimum wage on employment based on research that began with David Card and Alan Krueger comparing minimum wage increase in New Jersey to fast food restaurants across the border in Pennsylvania that didn’t have them, to more recent research that’s taken basically the same method but applied it to hundreds of contiguous county pairs where one of them raised the minimum wage, one of them didn’t. You compare the employment in one county as compared to the other.
This is something economists have spent a long time studying, there’s a lot of papers on, and most of those papers are very close to zero. Some papers are negative. There’s probably some papers that have found -- people have gone out and run a regression and found a big increase in employment, decided that that probably isn’t true, correctly decided that and didn’t publish the paper. I think that doesn’t happen on the other side. If you find a large negative effect, those papers tend to be published, so there’s also some publication bias here. But when you look at some of the highest quality studies in all of it, I think it’s completely reasonable to think it would have zero impact on employment.
Q Jason, so the CBO report also looked at the effects of a $9 minimum wage, which of course is what President Obama first proposed a year ago. And it was only I think just a few months ago that he got on board with the Harkin-Miller plan of $10.10. So then the report, as you expected, the effects -- the positive and negative -- were more muted with the $9 one, but I think the effects on employment were somewhere on the order of like a fifth of the $10.10 proposal. And so I’m wondering if you feel like this would have been a much easier sell at $9, politically, and how secure you are in feeling that $10.10 is the right number here.
MR. FURMAN: I guess I’d say substantively it was one type of proposal that benefitted a wide swath of workers. This benefits 16.5 million directly below $10.10, and then CBO says that as many as 8 million who are just above that line would benefit. That’s substantially more than at $9 an hour. If you look at the poverty line for a family of four with one full-time worker who is working full-time, $10.10 takes that family -- if they’re working full-time -- at the minimum wage from below the poverty line to above the poverty line. And, as I said, we don’t accept the conclusion in this report that this reflects consensus of economists, and that zero employment within the range of $10.10, $9 -- any of those numbers -- would be a perfectly reasonable estimate of the employment impact.
Q I’m wondering, you’ve obviously been looking at this issue for a long time and I’m curious at what you’ve learned from studying minimum wage increases that have been enacted in the past and how that impacts your point of view for increasing the minimum wage now to $10.10.
MS. STEVENSON: This is Betsey. And Jason passed this to me because he sort of already stated this, so I’ll give you a second opinion. I’ve been also looking at minimum wage studies since my very first days in graduate school, and I really do believe that both the profession and the literature has moved towards thinking over the last couple of decades towards thinking the employment effects are small.
I think early on in the literature, people were really focused on this idea that sort of comes from that intro Ec class that many of you may have taken, which is that you assume that productivity doesn’t change or can’t be influenced by the rate of pay. And as I stated earlier, a new burgeoning literature has really pointed out that how much you pay people actually affects how they perform, what they do, and how much they produce. Once you have that relationship between pay and productivity, it changes the standard model in a way that means that you don’t get the loss of employment that that supply and demand X that you saw on the chalkboard, if you took introductory economics, would have demonstrated.
And that, plus the empirical estimate -- so a better understanding of the theory, the complexity of the theory, and hundreds of empirical estimates of the actual effect has really shifted at least how I view the employment effects of the minimum wage. And I think that I am really sort of in the middle of the distribution and the profession in terms of thinking about how the minimum wage affects employment.
MR. FURMAN: And then, just one thing to add is also people have looked across states or across counties that have changed it. And in addition to finding unemployment, as Betsey said, they’ve also found -- confirmed the more obvious things, which is that it raises incomes -- raising the minimum wage raises incomes and reduces poverty.
MR. LEHRICH: Thank you to Jason and Betsey, and to all of you for joining us today. As always, if you have follow-up questions or didn’t get your question in, don’t hesitate to check in with us. Otherwise, we’ll talk to you all next time. Thanks.
4:19 P.M. EST