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President Obama took action to lift more workers’ wages by requiring that federal contractors pay their employees a fair wage of at least $10.10 an hour. This executive order will likely result in over 500,000 lost jobs.

Article Highlights

  • Estimates show raising the minimum wage would cost 500,000 jobs

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  • Is losing 500,000 jobs worth lowering # of people in poverty by 2 percent?

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  • .@stanveuger: minimum wage raise has many downsides in CBO report

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On Tuesday, in a blog post on WhiteHouse.gov, Council of Economic Advisers members Jason Furman and Betsey Stevenson explained the meaning of the Congressional Budget Office’s new report on the impact of the president’s proposal to raise the minimum wage by 40 percent, to $10.10. They find all sorts of good news in the report: this new, higher minimum wage would benefit 16.5 million workers, it would increase incomes for millions of middle class families, it would help the economy today and a few other tautological restatements of the effects of raising the minimum on those who will not lose their jobs and languish in dependency.

Somewhat to my surprise, Furman and Stevenson appear to have overlooked the most important, headline-grabbing news in the report. The CBO estimates that probably about 500,000, but with a reasonable likelihood even a million workers will lose their jobs in what is still a weak labor market. This is, of course, great news for the administration. Because the government is not forcing businesses to fire these workers: the businesses in question are choosing to fire workers that they deem unworthy of pay above the current minimum wage. It is astonishing to me that Furman and Stevenson dedicate the second half of their blog post to attempts to downplay the number of workers that firms would choose to fire if faced with a $10.10 minimum wage. For if there is one thing we learned from the administration’s response to the CBO’s most recent report on the Affordable Care Act, it’s that choices are good, no matter what incentives the government has created.

And it’s not just that. Let’s look at it from the perspective of the newly unemployed low-skilled worker. She no longer has to worry about job lock, and can finally dedicate her life to Icelandic epic poetry. I cannot believe that the Council of Economic Advisers would willfully ignore the contributions the president’s plan will make to the looming Renaissance of the arts in America.

Dereliction of duty is a strong term. But it is appropriate here.   

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About the Author

 

Stan
Veuger

  • Stan Veuger is a resident scholar at AEI.  His academic research focuses on political economy, and has been published in The Quarterly Journal of Economics. He writes frequently for popular audiences on a variety of topics, including health and tax policy. He is a regular contributor to The Hill, The National Interest, U.S. News & World Report, and AEIdeas, AEI’s policy blog. Before joining AEI, Dr. Veuger was a teaching fellow at Harvard University and Universitat Pompeu Fabra. He is a board member of the Netherland-American Foundation in Washington and at The Bulwark, a quarterly public policy journal, and was a National Review Institute Washington Fellow. He is a graduate of Utrecht University and Erasmus University Rotterdam, and holds an M.Sc. in Economics from Universitat Pompeu Fabra, as well as A.M. and Ph.D. degrees, also in Economics, from Harvard University. His academic research website can be found here.


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