Economy

The No-Brainer Argument for $9 an Hour

flickr/B Unis
Raising the minimum wage from $7.25 to $9 should be a no-brainer. Republicans say it will cause employers to shed jobs, but that’s baloney. Employers won’t outsource the jobs abroad or substitute machines for them because jobs at this low level of pay are all in the local personal-service sector (retail, restaurant, hotel, and so on), where employers pass on any small wage hikes to customers as pennies more on their bills. States that have a minimum wage closer to $9 than the current federal minimum don’t have higher rates of unemployment than do states still at the federal minimum. A mere $9 an hour translates into about $18,000 a year—still under the poverty line. When you add in the Earned Income Tax Credit and food stamps it’s possible to barely rise above poverty at this wage, but even the poverty line of about $23,000 understates the true cost of living in most areas of the country. Besides, the proposed increase would put more money into the hands of families that desperately...

Pretty Words, Dismal Economics

AP Photo/ Evan Vucci
AP Photo/ Evan Vucci President Barack Obama at a pre-kindergarten classroom at College Heights Early Childhood Learning Center in Decatur, Georgia last week. The president is traveling to promote his economic and educational plan that he highlighted in his State of the Union address. B arack Obama’s State of the Union address last week—which called for, among other things, universal pre-K and raising the minimum wage—offered a bold program for rebuilding the middle class. But the president’s continuing commitment to budgetary austerity makes these commitments hollow, if not cynical. And just as Obama and the Democrats paid the price in the 2010 midterm election for excess caution and conciliation, the results of tokenism are not likely to be pretty in the midterms of 2014. Obama's plans for rebuilding the middle class will cost money. Universal pre-K alone would require upwards of $20 billion a year. Unless the president cynically imagines token “demonstration” programs, job training...

Minimum Wage 101

Flickr/pixbymaia
In his 2013 State of the Union, President Obama proposed a $9 federal minimum wage, indexed to inflation. Here to discuss the minimum wage as a policy is Arindrajit Dube. Dube is a professor of economics at the University of Massachusetts Amherst and a widely respected scholar of labor markets and the minimum wage. Along with T. William Lester and Michael Reich, he is the author of Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties (2010), a major study that found no adverse employment effects of minimum wages increases by studying counties that cross state lines. Dube has written a summary back in 2011 on the state of this research here. Narrow, technical issues have dominated so much of the debate on the minimum wage, so I wanted to step back and get a better understanding of the minimum wage as a policy mechanism. These remarks are lightly edited. What does an introductory-level Economics 101 textbook tell us about the minimum wage, and how does that...

Be Like Janet, Dammit

AP Photo/Susan Walsh
AP Photo/Susan Walsh Homeland Secretary Janet Napolitano testifying on comprehensive immigration reform before the Senate Judiciary Committee hearing yesterday. S peaking about the U.S.-Mexico border in San Diego, California, on Monday, Secretary of Homeland Security Janet Napolitano assured the audience that "the border is secure ... I believe it is a safe border," an assessment she reprised yesterday in a Senate hearing on immigration reform. "I often hear the argument that before reform can move forward we must first secure our borders, but too often the ‘border security first’ refrain simply serves as an excuse for failing to address the underlying problems," Napolitano said. "Our borders have, in fact, never been stronger." In advance of the administration's push for immigration reform, the secretary has quietly been making the case that after a decade-long ramp-up in investment, the wave of unchecked immigration that began in the 1990s has come to an end. Indeed, in the last...

Inaugural versus SOTU

Rex Features via AP Images
President Obama did not say last night that “the state of the Union is strong” a favorite phrase used in past State of the Union speeches. Instead he said, “The state of the Union is stronger.” That phrase points away from “the rubble of crisis” and toward a brighter future. In that respect, the address shared much in common with the president’s Inaugural, which presented a broad, liberal vision for Barack Obama’s second term and set policy goals for years down the road. In his address to the join session of Congress, the president was able last night to lay out more specific proposals than he could in his Inaugural speech. But did the president stay true to the ideals he set out in January while delivering his sometimes technical and wonky address last night? We investigate that question – point by point – below. Education During his Inaugural address President Obama said “a modern economy requires … schools and colleges to train our workers” suggesting we should improve schools by...

Republicans Will Appeal to Latinos by Opposing Policies They Support

Alex Campbell / Medill News Service
In something that shouldn’t come as a surprise, at all Republicans have already announced their opposition to a minimum-wage hike. Here’s House Speaker John Boehner, throwing cold water on the proposal: “I’ve been dealing with the minimum wage issue for the last 28 years that I’ve been in elected office,” Boehner told reporters at a press conference, arguing that raising the minimum wage would hurt people trying to climb the “ladders of opportunity” that Obama mentioned in his speech. “When you raise the price of employment, guess what happens? You get less of it. At a time when Americans are still asking the question, ‘where are the jobs?’ why would we want to make it harder for small employers to hire people?” he said. Senate Minority Leader Mitch McConnell complained that President Obama “spoke of workers’ minimum wages, instead of their maximum potential,” and Florida Senator Marco Rubio did the same when asked about the issue on CBS This Morning: “I don’t think a minimum-wage law...

How Would a Minimum-Wage Increase Affect the Economy?

401K / Flickr
Besides universal preschool , the most overtly progressive policy proposed by President Obama last night was a large minimum-wage hike, from the current rate of $7.25 per hour—instituted in 2009—to a new rate of $9 per hour. Not only is this higher than the minimum wage in every state other than Washington, but when adjusted for inflation, it’s the highest minimum wage since 1981. As is true whenever politicians propose a minimum-wage hike, there is concern over the effect on business and hiring. The traditional line —pushed by Republicans and business groups—is that an increase will cost jobs and harm small businesses. But if two decades of research are any indication, the actual effects of a minimum-wage hike are minimal and in some cases, positive. In 1992, economists Alan Krueger (now co-chair of Obama’s Council of Economic Advisors) and David Card took advantage of a natural experiment —New Jersey increased its minimum wage by 18.8 percent, while neighboring Pennsylvania remained...

The Return of the Balanced Budget Amendment

Flickr/Gage Skidmore
S enate minority leader Mitch McConnell says Senate Republicans will unanimously support a balanced-budget amendment, to be unveiled Wednesday as the core of the GOP’s fiscal agenda. There’s no chance of passage so why are Republicans pushing it now? “Just because something may not pass doesn’t mean that the American people don’t expect us to stand up and be counted for the things that we believe in,” says McConnnell. The more honest explanation is that a fight over a balanced-budget amendment could get the GOP back on the same page—reuniting Republican government-haters with the Party’s fiscal conservatives. And it could change the subject away from social issues—women’s reproductive rights, immigration, gay marriage—that have split the Party and cost it many votes. It also gives the Party something to be for , in contrast to the upcoming fights in which its members will be voting against compromises to avoid the next fiscal cliff, continue funding the government, and raising the...

The President's Dream State

AP Photo/Charles Dharapak
AP Photo/Charles Dharapak President Obama at last night's State of the Union address B y any measure, President Obama’s first term was consequential. In four years, he signed an $800 billion stimulus program into law, laid the foundation for universal health insurance, secured new regulations governing the financial sector, repealed "don't ask, don't tell," and put the United States on the path back to economic recovery. For his second term, he has an agenda that’s just as ambitious and—reflecting the coalition that re-elected him—unambiguously progressive. Other than a de rigeur nod to deficit reduction—he mentioned “the deficit” ten times—the speech ticked off a litany of liberal policies: Universal pre-school, a cap-and-trade system to limit carbon emissions, a higher federal minimum wage (set at 9$ an hour, the highest it’s been since 1981), and billions more in new infrastructure spending to repair roads and bridges. That’s to say nothing of comprehensive immigration reform (with...

Still Waiting for That GOP Fever to Break

Photo of Bay Bridge construction courtesy of Caltrans
Word is that in tomorrow's State of the Union address, Barack Obama is going to propose some new infrastructure spending. Not only as a way of boosting the economy in the short term by creating jobs in areas like construction, steel, concrete, those little plastic anchors you put around screws when you're putting them in brick, and so on, but also as an investment that pays long-term dividends in the form of bridges that work and sewer pipes that don't burst. As Neil Irwin points out , given the large number of construction workers sitting idle and the incredible fact that the United States can now borrow money at negative interest—something that won't be true forever—it would be crazy for us not to take advantage of this moment and start doing some long-overdue repairs. "One can easily imagine a deal," Irwin writes. "Democrats get their new infrastructure spending, and Republicans insist on a structure that requires private sector lenders to be co-investors in any projects, deploying...

Austerity's Unintended Consequences

AP Photo/Mauro Scrobogna, LaPresse
AP Photo/Mauro Scrobogna, LaPresse Italian media mogul and former ex-Premier Silvio Berlusconi during a television appearance last week. The latest political polls suggest he is gaining ground on center-left candidate Pier Luigi Bersani ahead of Italy's elections. I s the worst of the Eurozone crisis over? The optimists—out of conviction or calculation—say “yes.” The European Central Bank’s promise to purchase an unlimited amount of government bonds from member-states who find their credibility questioned by the capital markets has brought the borrowing rates of the European periphery down to manageable levels without spending a single euro. Ireland, the second Eurozone country to require an international bailout in November 2010, has already made a partial return to the markets for long-term borrowing, while Portugal, which was bailed out in May 2011, hopes to do so later this year. Even Greece seems to be making headway with reforms and fiscal consolidation, the result of which has...

Mass Joblessness Is Still a Problem—Someone Tell Washington

kanu101 / Flickr
The unemployment rate is a decent measure of where the economy stands, but it doesn’t provide a full picture of joblessness—it only measures the employment status of people looking for a job. For a broader sense of unemployment—and its affect on everyday life—you have to dig deeper. A recent study from Rutgers University, for example, provides a sobering look at the broad impact of persistent joblessness. In “ Diminished Lives and Futures: A Portrait of America in the Great-Recession Era ,” researchers Mark Szeltner, Carl Van Horn, and Cliff Zukin find that “nearly one-quarter (23%) of all survey respondents report being laid off from either a full-time or part-time job.” There’s a stark racial divide, 31 percent of blacks and Hispanics report losing a job, versus 22 percent of whites, and a large gender gap—27 percent of men have lost employment since the recession began, versus 19 percent of women. What’s staggering is the number of people who have been touched by joblessness...

Jobs and Growth, Not Deficit Reduction

Flickr/Andreas Klinke Johannsen
C an we just keep things in perspective? On Tuesday, the President asked Republicans to join him in finding more spending cuts and revenues before the next fiscal cliff whacks the economy at the end of the month. Yet that same day, the Congressional Budget Office projected that the federal budget deficit will drop to 5.3 percent of the nation’s total output by the end of this year. This is roughly half what the deficit was relative to the size of the economy in 2009. It’s about the same share of the economy as it was when Bill Clinton became president in 1992. The deficit wasn’t a problem then, and it’s not an immediate problem now. Yes, the deficit becomes larger later in the decade. But that’s mainly due to the last-ditch fiscal cliff deal in December. By extending the Bush tax cuts for all but the top 2 percent of Americans and repealing the alternative minimum tax, that deal increased budget deficits by about $3 trillion above what the budget office projected last August. The real...

Debt Reduction Is Hurting the Economy

Wall Street Journal
For left-leaning writers, at least, it’s almost cliché to note the extent to which the press defers to deficit hawks, despite clear evidence that deficits are not a pressing problem for the United States. Even still, it’s worth noting when reporters pass along received wisdom, especially when we have fresh data to show the folly of Washington’s obsession with deficit reduction. To wit, here’s The Wall Street Journal with a piece that just cedes the idea there’s a deficit problem and it requires further “belt tightening” from the federal government: A slowly improving economy and recently enacted tax increases will help bring down the federal deficit for the next few years, the Congressional Budget Office said Tuesday, but it will take another $2 trillion in belt-tightening over the next decade to begin to move the federal debt closer to historic levels. […] CBO projects that if Congress leaves current laws unchanged, the debt will be 77% by 2023, and it will be higher if across-the-...

Wonder Warren

AP Photo/Win McNamee
AP Photo/Win McNamee Senator Elizabeth Warren, Democrat from Massachusetts, at the presidential inauguration S ince the start of the new Congress, liberal Democrats have anxiously awaited senior Senator from Massachusetts Elizabeth Warren’s initial moves. Celebrity entrants into the Senate—from Hillary Clinton to Al Franken—have tended to take a modest approach, immersing themselves in committee work and issues of local importance, building relationships with their colleagues, and operating as a “workhorse, not a show horse.” By contrast, Warren said during the campaign that she wanted to use her new position as a platform for her ideas . And one of her first actions suggests she will spend her time as Senator much the way she did as chair of the TARP oversight panel and at the Consumer Financial Protection Bureau: shedding light on the harm caused by unscrupulous financial interests. (Editor's note: Warren's daughter, Amelia Warren Tyagi, is a member of the Prospect 's governing...

Pages