Hiking the minimum wage won’t save much money on federal benefits to the poor, new research suggests.
The American Action Forum says scanty savings from lower spending on tax credits and food stamps would be far outweighed by the damage done in jobs lost and earnings vaporized.
“We just wanted to get into the debate some sense of perspective,” said Douglas Holtz-Eakin, president of the conservative think tank and formerly director of the Congressional Budget Office and economic adviser to Republican candidates and officeholders.
Union-backed protesters will demonstrate Thursday at McDonald’s, Burger King, and Wendy’s restaurants nationwide, calling for hourly wages of $15.
Protest organizers, working for the coalition identified as Fast Food Forward, deride those businesses as “welfare queens,” basing their criticism on left-of-center research suggesting that taxpayers subsidize big corporations’ low wages.
Uncle Sam shells out $7 billion a year on public assistance for fast food workers, says a study published last fall by the Labor Center at the University of California, Berkeley and the University of Illinois. That spending is on health insurance through Medicaid, food stamps, and refunds via the Earned Income Tax Credit, which pays poor families to work.
David Cooper, a researcher at the Economic Policy Institute in Washington, concluded in a research note in October that raising the federal minimum wage from its current $7.25 an hour to $10.10, which is favored by President Obama and Democrats, would move 1.7 million workers off public assistance. That would save $7.6 billion in welfare, food stamps, and tax credits, they say.
But the American Action Forum finds that jobs killed by higher wage costs would far offset savings.
“The main impact is a jobs impact, and that turns into an earnings impact for the people whose jobs go away — because they’re not created,” said Holtz-Eakin.
Specifically, the Forum claims that a $10.10 wage would cost 2.2 million jobs and reduce those workers’ earnings by $20 billion.
The evidence comes from researchers at Texas A&M who found that minimum wage hikes slowed job growth.
In February a report from the nonpartisan Congressional Budget Office found that $10.10 minimum wage would cost 500,000 jobs.
The picture from Texas A&M is even worse. But Obama’s economic advisers immediately criticized it, saying the majority of studies show little or no increase in joblessness from minimum wage hikes.
If that were the case, there would be only benefits to the Treasury, and no lost jobs and earnings from raising the minimum wage, Cooper told the Washington Examiner.
Even bigger than the disagreement over minimum wage statistics is the argument over whether a federal safety net or the private sector should combat poverty.
“If we have jobs where pay is so low that working year-round doesn’t get you out of poverty, that’s a problem. We’ve set up a scenario so that the absolute minimum standard of living set by our government cannot be met by a full time job,” Cooper said, referencing the federal poverty level, which is roughly $24,000 for a family of four.
Instead, higher minimum wages must be part of the solution, Cooper said. “I don’t think you can say that one of those two — what we do through taxes and transfers — can solve the problem on its own.”
Allegretto argued that businesses would prefer to have the government and taxpayers foot the bill for the safety net rather than raise wages themselves. “The business community loves to tout the [earned income tax credit] because it simply leaves them off the hook for paying an increase or decent wages — shifts it to the taxpayer,” Allegretto said. Instead, she’d favor seeing both the minimum wage and government tax credits increase hand-in-hand.
“What they’re implicitly doing is saying we’re going to take money from these corporations and give it to poor workers, and that’s not going to happen,” Holtz-Eakin said, adding, “A higher minimum wage will mean their prices will have to go up, and the poor people who eat at those places will have to pay more to pay the wages of the poor workers.
“This fantasy that they have of a big bucket of profits is simply at odds with empirical reality. I also have a rich fantasy life but I don’t want to see it translated into public policy.”
