Cost of Minimum Wage Rise Is Nominal

Raise the Minimum Wage?

The standard conservative argument against the minimum wage is that it will cost jobs. If you scratch at it, however, it falls apart. As I discussed in Rasing Minimum Wage Won’t Hurt Employment, the truth is that the data on this issue are at worst murky. And one has to ask, “If raising the minimum wage is so catastrophic, why are the data supporting this claim so poor?” What’s more, the argument against raising the minimum wage is the same as the argument against even having a minimum wage. Though this is an argument that appeals to the Tea Party base, it doesn’t fly with any other voting block.

So it was quite interesting when the Associated Press reported, Budget Office: Wage Boost Would Cost Firms $15B. The Senate plan to raise the minimum wage up to $10.10 per hour (Still too low, but a good start!) would cost the business community $15 billion per year as of 2017. That sounds like a lot of money, but the AP was nice enough to put it into perspective:

But it could also be beneficial to Democrats because the private sector spent $5.4 trillion on wages in 2012, according to the most recent data from the federal Bureau of Labor Statistics. That means the increased pay would boost employers’ wage costs by just 0.003 percent, or about one-third of a penny for every dollar spent on salaries.

It would also cost the government an extra $2 million for the ten year planning period. That’s almost nothing: less than 0.0001% of the federal budget, according to CEPR’s indispensable Responsible Budget Calculator. Why so little? Because the entire federal government only has 4,000 employees who currently make less than $10.10 per hour!

Of course, I know what the next line of attack would be from conservatives, “That’s $15 billion more that we will have to pay for stuff!” Now this is absolutely not true, as I explained in, Raising Minimum Wage Won’t Raise Prices. But let’s assume for the moment that it does. The United States’ economy is enormous. The initial estimate of our GDP last year is $16.8 trillion dollars. So this extra pay represents less than one-tenth of one percent of our economy. But it doesn’t work that way. Mostly, what raising the minimum wage will do (especially in our depressed economy) is take money away from people who don’t spend it all and give it to people who do spend it all. So the economy won’t be hurt.

This afternoon, Dean Baker wrote, $15 Billion In Higher Pay: Cheap Fun for Republicans Over the Minimum Wage. In it, he noted:

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.

Of course, the conservatives will have no trouble batting that aside. It’s the usual issue that $10 billion spent on Exxon is Right and Proper. But $10 million spent on hungry kids is an Outrage. The rest of us don’t have to listen to that though. A rise in the minimum wage is long overdue.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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