Printed letters, February 26, 2014

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Commenting is not available in this channel entry.

Don Boyles’ letter – “Can businesses simply hike prices to pay higher wages?” – reveals more than he intended “regarding his [own]knowledge and understanding of how the U.S. economy works”, and that he didn’t read the CBO’s report.

First, by raising the minimum wage from $7.25 to $10.10 per hour (39.3%), President Obama would restore the minimum wage’s 39.3% loss of purchasing power since it was increased under Republican Ronald Reagan. 

Second, Boyle implies that President Obama – when he raised the minimum wage for federal contract employees by Executive Order – didn’t know that “almost all federal employees already make more than that”.  What Boyle doesn’t seem to know is that the Order was targeted at lower paid federal “contract” employees (e.g., cafeteria workers, janitorial staff, night custodians, etc.).

Third, contrary to Boyles’ assertion, the CBO estimated that increasing the nationwide minimum wage to $10.10 has a two-thirds chance of indirectly (not “directly”) costing between zero (“0”) and 1 million American jobs by the end of 2016, and selected 500,000—.3 percent of the total labor force—as its midpoint (not its “minimum”) estimate.

While any loss of American jobs is never a good thing, Boyle fails to mention is that the CBO also estimated that at least 16.5 million hard-working Americans (about 10% of the labor force) will get a much overdue pay raise.  Thus, the “good news” from the CBO is at least 30 times better than the bad news!

Moreover, the CBO reported that raising the minimum wage to $10.10 would raise at least 900,000 people above the poverty threshold – thus reducing “safety net” spending.

Consequently, some economists predict that most businesses will readily absorb the costs of paying higher wages without even modest price increases, and economic stimulus effects will more than offset low-end job losses.

Bill Hugenberg addresses most of the comments I would’ve made on Don Boyles’ letter, so I will add just two.

One, since Congress has a habit of passing wage and benefits bills that don’t apply to them, it was important for the President to make clear that this was not one of those cases.

Two, it’s ironic that a letter criticizing the president’s grasp of economics should be so fundamentally flawed in its analysis.  A 39% average wage hike for a company’s low wage workers will not result in a 39% price hike, even if a company’s entire workforce is paid minimum wage. That’s because wages typically account for less than half of a company’s operating expenses. Payroll in fast food, which has a high proportion of such workers, amounts to 25% or less of total expense. That translates to a price increase of less than 10%, assuming the company sees no productivity gains from better paid employees and no increase in sales from the 16.5 million customers better able to afford its products.

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