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Home Publications Blogs Beat the Press $15 Billion In Higher Pay: Cheap Fun for Republicans Over the Minimum Wage

$15 Billion In Higher Pay: Cheap Fun for Republicans Over the Minimum Wage

Friday, 18 April 2014 13:01

The Republicans apparently think they got a powerful piece of ammunition from the Congressional Budget Office this week when it came out with an estimate that President Obama's minimum wage proposal would cost employers $15 billion a year. Under the "really big number" approach to public policy, many Republicans think they can scare people with a number that is much more money that almost anyone will see in their lifetime.

Fortunately at least some folks in the media recognize that their job is to inform rather than scare readers. The AP story on the report pointed out that the $15 billion represented roughly one third of one penny of every dollar paid out in wages. Are you scared yet?

Those looking for useful comparisons of the costs imposed by the higher minimum wage may also want to compare it to the savings we have seen from slower health care cost growth. Back in 2008 the Centers for Medicare and Medicaid Services projected that we would be spending $3,313 billion on health care in 2014. Their most recent numbers show us spending $3093 billion in 2014. This amounts to a savings of $220 billion, or more than 14 times as much as CBO projects the higher minimum wage will cost employers.

We can argue over the extent to which the Obama administration deserves credit for lower cost growth. But, there is no doubt that the savings on health care, which have largely passed on unnoticed, are a hugely bigger deal than any costs to employers due to a higher minimum wage.

Of course just because this money is not a big deal to employers doesn't mean it is not a big deal to minimum wage workers. It will make a big difference in the living standards of the families of minimum wage workers, 70 percent of whom live in families with incomes of less than $60,000 a year.


Note: Numbers corrected, thanks to Robert Salzberg.

Comments (6)Add Comment
There are costs no matter what
written by paulpfish, April 18, 2014 2:13
It seems to me that the simplest argument for a higher minimum wage is that there is a cost associated with keeping people from starving no matter what. Either taxpayers have to pay the cost in the form of welfare programs, or employers have to pay wages that are sufficient to keep workers off of welfare. With a low minimum wage, "the makers", in effect, get rich by using the government (that is you and me) to pay their employees a living wage without having to produce a product we want. At least if adequate wages are being paid, I can get goods and services in exchange for paying to keep people off welfare. Otherwise I have to pay the wage difference for the employees even if I don't patronize their business. Maybe the economic theory is more complex than this, but I doubt it.
written by urban legend, April 18, 2014 9:45
The tone of the CBO report suggests that an economic traditionalists' thumb against raising the minimum was being put on the scale. When wages are depressed as much as they are now and there has been no increase in the minimum for five years, and when incomes at the higher levels have increased just fine and are more than enough to cover a desired lifestyle, it seems unduly formulaic to propose that there will be any loss of jobs whatsoever.

The gut working with some data is probably as good a guide as models that by definition cannot replicate the unprecedented situation we have now, and the gut tells me the stimulative effect of a 40% increase in wages for 25 million or more people who will be directly affected or indirectly affected through the upward cascade effect -- we are talking over $4000 a year for the average minimum wage worker, over $5000 for the full-time worker -- will overwhelm any negative impacts and result in significant net job gains.

It didn't seem clear how the CBO got that figure of $15 billion, especially when the annual aggregate wage increase after full implementation would be in the neighborhood of $90 billion. Think of it as employer investment of that amount: at some estimates of 25,000 jobs per billion in government infrastructure expenditure (including multiplier effect), that's 2.25 million jobs created. Since incomes for the ownership class have grown rapidly, it is hard to imagine much of any offsetting spending cuts from lost income from ownership -- i.e., from a lifestyle reduction by those who have to pay the increases. Besides, incomes at the top will be insulated from reductions by lower turnover costs, more business from people with more money to spend, and the very modest price increases that would be required and will be easy as wages improve across the board.

It is also fairly easy to apply this way of thinking and see situations where increases in the minimum wage really would have offsetting effects. This doesn't look like one of those situations by any stretch of the imagination.

Get Democrats back in control of Congress, stop all the hand-wringing, and just do it.
written by djb, April 19, 2014 6:39

Yes lets side with the exploiters
written by Downpuppy, April 19, 2014 7:47
"0.0003 percent" is off by a factor of 100. .3 cants per dollar is right. Even when the AP tries, they fail.
Monday's CBO report
written by John Shaplin, April 19, 2014 10:11
I'd like to hear Dean Baker's response he other CBO report that under ACA, beginning in 2015 insurance premiums will likely rise 6% every year until at least 2024, that in the shift from employer-based insurance workers taxable income will increase ( in an economy of declining wages and benefits) and that 31 million residents of the U.S. will remain without health insurance.How bad is this?
Not Thinking
written by Larry Signor, April 20, 2014 8:21
Anyone who thinks the ACA will not be altered between 2015 and 2024 is just not thinking or paying attention. We have very little guidance to help us project the impact of this effort 10 years hence. This year, it is working. Next year, hopefully, it will work better. Let the naysayers worry about what hasn't happened.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.