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Home Publications Blogs Beat the Press Robert Samuelson's Arithmetic Challenged Economics

Robert Samuelson's Arithmetic Challenged Economics

Sunday, 23 February 2014 20:55

Yes, it's Monday and Robert Samuelson is badly confused about economics again. Today he complains about the White House's "fairy-tale economics."

Robert Samuelson is upset because the Obama administration has been arguing that it is possible to raise the minimum wage without any job loss. He apparently feels that he can now dismiss this claim as fairy-tale economics because the Congressional Budget Office (CBO) issued a study that put its best guess of the job loss from the administration's proposal at 500,000.

It's worth noting that in its report CBO did not dismiss the possibility of zero job loss as fairy-tale economics. CBO noted the economic research on the topic and commented that the plausible range of impact would include near zero. CBO did not do original research; rather it chose to pick a number for its estimate that was a midpoint of the findings of recent research. (See my colleague John Schmitt's post for a longer discussion.) So the dismissal of a zero estimate of job loss as fairy-tale economics is Samuelson's invention, not a conclusion based on CBO's analysis.

It is also worth doing a little arithmetic to assess the 500,000 figure. As Samuelson points out, CBO projects that the minimum wage hike would affect 16 million people directly and another 8 million through spillover effects. This means that the lost jobs will be roughly equal to 3 percent of the workers directly affected and 2 percent of the total number of workers who see wage hikes.

For the most part, the reduction in employment of 500,000 will not correspond to workers being laid off. More likely it means that workers will not be replaced when they leave and that firms will be slower to hire when they see an increase in demand.

This is important to keep in mind, because we are not talking about 500,000 workers being permanently unemployed. Minimum wage jobs tend to be high turnover jobs. As a practical matter, a loss of 500,000 jobs means that workers will spend more time looking for jobs when they first enter the labor force or change jobs. This means that they can expect to spend roughly 2-3 percent less time working, but when they do work they will get close to 19 percent more per hour. Note this is not "fairy-tale economics," this is Robert Samuelson's economics if he bothered to think through what he was saying.

There are other fun items in Robert Samuelson's piece. He is still unhappy about the Affordable Care Act. He tells readers;

"In another report, the CBO estimated that the health insurance subsidies in the Affordable Care Act (Obamacare) would discourage people from working, resulting in a loss of the equivalent of 2.5 million full-time workers by 2024."

Let's try a little logic here. CBO says that being able to get access to health care insurance outside of the workplace will lead people to reduce the number of hours they work by the equivalent of 2.5 million full-time jobs. This means that near retirees, people in bad health, and parents with young children will opt to work less. Samuelson apparently thinks this is really bad for some reason -- maybe he can explain why in a later column.

But from the standpoint of employment, it's hard to see why this is not good news. In effect, this is saying that 2.5 million people who would rather not be working will be opting out of the labor force. This means that 2.5 million jobs will be opening up for people who do want to work. And the problem is?

Finally, Samuelson is upset that President Obama has not approved the XL pipeline, which he describes as a "job-creation project." Here too a bit of arithmetic is in order. According to the standard estimates, the XL pipeline would increase employment by about 0.007 percent for two years. The jobs added would be the equivalent of two days' worth of normal job creation. That would not seem to fit the bill of a "job-creation project."

However, the other side of the story is that it will facilitate the extraction of oil that is very dirty from the standpoint of global warming. In other words, it will contribute in a big way to global warming and the destruction of the planet.

This is especially ironic coming from Samuelson. One of the main themes of his columns is that the old are stealing from the young with their Social Security and Medicare. However Samuelson apparently sees nothing wrong with handing our kids a wrecked planet so that we can increase employment by 0.007 percent for two years.

Hey, this is the Washington Post and Robert Samuelson, you were expecting an argument that made sense?

Comments (15)Add Comment
Keep Stepping
written by James, February 23, 2014 9:42
$amuelson is very consistent with many others: want to keep the blue-collar works down and down in all the ways from wages to social security to affordable health care.

They want 5 million desperate for job (needed health care) clamoring and competing for 2.5 million jobs so they will work for below working wage. In fact, they such as the .01 percent would want the rest of folks work for bread, not for wages.

However, you try to affect $amuelson and Brooks' industry or pay, they sure will scream!

It has been very systematically done.
I've lost confidence
written by Dave, February 23, 2014 10:13
I see no evidence that any economist has a full grasp on this issue and its interaction with the broader macroeconomic conditions. It isn't even mentioned anywhere. You're letting these guys get away with hackish statistical methods. It looks as bad as stuff that comes out of Chicago.
written by urban legend, February 24, 2014 12:03
From the questionable (really, inaccurate) phrasing chosen in key sections of these CBO reports, it almost seems like someone there wanted to make sure the reports provided the Republicans some talking points.

It's amazing and sad that the most prominent newspaper in the nation's capital gives an economic illiterate like Samuelson a platform like that. And to think it was probably originally his last name that opened up the opportunity! (That's not a joke, either.)
You're too hard on Samuelson
written by two beers, February 24, 2014 12:18
His argument is more sophisticated than you give him credit for: because the wreckage of climate change will create so many jobs opportunities(e.g. building levees, digging graves, moving entire cities, etc), it's our dutyto future generations to build the XL Pipeline!
written by foosion, February 24, 2014 4:44
Trade policy is good, because even though it hurts those who lose jobs, the gain to others is much higher.

Raising the minimum wage is bad, because it hurts those who lose jobs, even though the gain to others is much higher.

The difference, of course, is those who benefit from current trade policy are much richer and more influential than those who would benefit from raising the minimum wage.
Slapping Around the Lower Class to Save Them from Unemployment - Why Economic Predators Go for the Jugular When Arithmetic is Simple
written by Last Mover, February 24, 2014 5:11

The reason minimum wages are slapped around in public so much by simpletons like Samuelson is because it's so easy to sell to an economically illiterate public ... by economic illiterates themselves.

It doesn't take much to convince the public that anything (or anyone) with a higher price is less attractive than the same thing with a lower price. Just add that it's big government forcing employers to pay the higher price and it's a foregone conclusion that less employees and hours worked will be hired.

Compare that to a tight labor market (that doesn't exist) and the whole argument falls apart. Because in a tight labor market, the minimum wage easily becomes irrelevant for most. As wages rise due to employers competing for labor, most wages rise above the minimum wage anyway.

So what's going on here? It's the same zombie austerity meme that won't die. Higher wages caused by minimum wages, translate into less employment not only for one employer and one employee, but for all employers and employees of the lower income class as well.

From there the entire focus shifts from an opportunity argument to a redistribution argument on whether the lower class "deserves" a higher minimum wage and when they get it, how it is claimed to actually make them worse off in the aggregate than better off. It even gets absurd claims from proponents of a higher minimum wage who claim that recipients will spend more with a higher wage.

Who knew? Of course they will spend more if they have more, and they will obviously spend more at the margin for a higher multiplier than those above them. But it's still an arithmetic trap set by the predators who will say, then why limit minimum wage increases at all? Why not just set them equal to the highest wages and be done with it as the entire economy crashes to the ground?

Don't fall for it America. Don't let the sock puppets and economic predators who sponsor them dupe you again. Yes, minimum wages are essential as a safety net in the current Great Recession, but to hold them up as a long term solution to the gross obscene inequality bringing down America is to wander blind in the forest while looking for the trees.

We don't slap around the disabled in public. We don't slap around children in public. Yet we slap around minimum wage workers because ... the Great Recession that put them there in first place was engineered by the very 1% and their sock puppets like Samuelson, who get away with preaching fables that when something has a higher price on it, you get less of it.

Well in that case Robert Samuelson, why haven't economic predators disappeared off the face of the earth? Given the obscene prices paid by their victims in every way imaginable, how is it possible that a single one of them could possibly survive under such conditions of "free" choices made in the "free" markets you worship so much?
In a nutshell
written by Jonathan, February 24, 2014 7:38
Dr. Baker, I love the second-to-last paragraph. You have encapsulated everything that's mistaken with Samuelson's view in just a couple words.
VSP Memo on Global Warming
written by sherparick, February 24, 2014 7:56
Dean, apparently a memo was sent around in 2010 that because someone hacked a British climate institute and stole a lot of e-mails and then printed them out of context to make the scientists look bad, that global warming is not a problem!!

XL will make a lot of money for Trans-Canada and companies extracting oil from Alberta (including the Koch Brothers), and for the refiners on the Gulf Coast. Also, I guess it will create work for the people having to clean up the leaks and spills.

Finally, I think the term "job-creator" has reached its "jump the shark" moment.
written by zoniedude, February 24, 2014 9:30
There is some similarity to the ACA report by the CBO. No one has mentioned frictional unemployment. Particularly among entry level workers, and particularly among younger entry level workers, they tend to quit jobs because they are seeking their best fit with their talents. However, if finding a new job is difficult then economic efficiency is lost because of lower frictional unemployment. Higher frictional unemployment may appear to be a loss of jobs but it is actually an improvement in economic efficiency and increased income to those involved as they find more suitable employment.
written by Christiaan, February 24, 2014 9:47
I guess what Samuelson means is that Keystone XL creates a big windfall for some "job creators," so that's a real "job creation" bill.
How Exactly Does This Work?
written by Paul Mathis, February 24, 2014 1:59
firms will be slower to hire when they see an increase in demand

Let's say I run a McDonalds and the minimum wage goes up a buck but I have 10% more customers because the economy is growing. Why in the world would I PO my new customers and my old customers by delaying hiring staff because I must pay them a buck more an hour than before?

It makes NO SENSE as an employer to refuse to serve customers over $1/hour or even $5/hour. I would lose money AND customers! The exact same logic applies to laying off workers: makes NO SENSE if customer demand cannot be satisfied. R. Samuelson is an IDIOT!
what do minimum wage workers buy?
written by Dave, February 24, 2014 3:59
If they buy a representative cross section of products and services, the demand increase should produce at least half a million new jobs. if they buy iphones or other chinese goods, perhaps not so many jobs. if they buy goods and services from predominantly minimum-wage producing areas of the economy, it will produce more than a half million new jobs.
written by watermelonpunch, February 24, 2014 7:15
what do minimum wage workers buy?
written by Dave, February 24, 2014 4:59

Just a guess : NOT MUCH!
When Republicans When?
written by jumpinjezebel, February 25, 2014 3:05
Can anyone find a time when the Republicans ever thought it was a good time to raise the minimum wage??? peep peep
Lower Wages (for the 99%) = Higher Living Standards (for the 1%)!
written by chuck, February 28, 2014 1:17
Economists like Samuelson like to tell ordinary people that lower wages equal higher living standards even for those at minimum wage. The Rentier Class will always oppose an increase in the minimum wage no matter how modest; so why not go for broke and demand $15/hour! The corporate flaks will argue that the money has to come from somewhere so higher prices must result. False! Less than half the annual GDP is in the form of wages; more than half goes to rents, interest, capital gains and profits. Rentiers will always oppose increases in wages because it means less money going to capital. The Present Worth of your local McDonald's will be less if the owners have to pay higher wages. This means said owners can afford to pay less rent, interest, capital gains and profits to themselves and other assorted economic leaches. A step increase in the minimum wage will result in a step reduction in the valuation of any business that relies on minimum wage labor.

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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.