Council of Economic Advisers Blog
- Posted byon February 18, 2014 at 3:24 PM EST
The new Congressional Budget Office (CBO) report finds that 16.5 million workers would get a raise from increasing the minimum wage to $10.10 per hour and this would help millions of hard-working families, reduce poverty, and increase the overall wages going to lower-income households.
On employment, CBO’s central estimate is that raising the minimum wage to $10.10 per hour would lead to a 0.3 percent decrease in employment and CBO acknowledges that the employment impact could be essentially zero. But even these estimates do not reflect the overall consensus view of economists which is that raising the minimum wage has little or no negative effect on employment. For example, seven Nobel Prize winners and more than 600 other economists recently stated that: “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.”
The following are six key points from the latest CBO report. For more information, last week the Council of Economic Advisers (CEA) released a summary of the economic case for raising the minimum wage.
1. CBO finds that raising the minimum wage to $10.10 per hour would directly benefit 16.5 million workers. According to today’s CBO report, 16.5 million people making less than $10.10 per hour would get a raise if the minimum wage is increased. This figure does not include CBO’s estimate of as many as 8.0 million workers who currently earn just above $10.10 an hour but could also potentially see a raise due to the “ripple effect” of a shifting wage structure.
2. CBO finds that raising the minimum wage would increase income for millions of middle-class families, on net, even after accounting for its estimates of job losses. Middle class families earning less than six times the poverty line (i.e., $150,000 for a family of four in 2016) would see an aggregate increase of $19 billion in additional wages, with more than 90 percent of that increase going to families earning less than three times the Federal poverty line (i.e., $75,000 for a family of four in 2016). On net CBO estimates that national income would rise.
This finding is consistent with the fact that 62 percent of expert economists polled by the University of Chicago Booth School of Business agreed that the benefits of raising the minimum wage outweigh any potential costs, as compared to only 16 percent who disagreed.
- Posted byon February 17, 2014 at 1:00 PM EST
Five years ago, on February 17, 2009, less than a month into his first term, President Obama signed into law the American Recovery and Reinvestment Act of 2009. At the time, the country was experiencing the worst economic crisis since the Great Depression. Private employers had already cut almost 4 million jobs, trillions in dollars in household wealth had been wiped out, and the economy’s total output was in the midst of its sharpest downturn of the postwar era.
As part of the accountability and transparency provisions included in the Recovery Act, the Council of Economic Advisers was charged with providing to Congress quarterly reports on the Act’s effects. The final report in this series—and available HERE—affirms that the Recovery Act had a substantial positive impact on the economy, helped to avert a second Great Depression, and made targeted investments that will pay dividends long after the Act has fully phased out.
In the four years following the Recovery Act, the President built on this initial step, signing into law over a dozen fiscal measures that extended key features of the Act and provided new sources of support. These measures included a temporary payroll tax cut for 160 million working Americans, additional extensions to the Emergency Unemployment Compensation program, expanded business tax incentives, small business tax cuts, and funding to protect teacher jobs.
- Posted byon February 12, 2014 at 11:57 AM EST
Update: Read President Obama's remarks on the importance of raising the minimum wage before signing today's Executive Order
In his 2014 State of the Union address, President Obama announced his intention to move forward using his own authority and raise the minimum wage for workers on new and replacement Federal service contracts to $10.10 an hour. As the President said, “If you cook our troops’ meals or wash their dishes, you shouldn’t have to live in poverty.” Today, the President will sign an Executive Order making this vision a reality.
This step is a smart business decision for the government because it will make Federal procurement more economical and efficient. An extensive body of research suggests that giving a raise to lower-income workers reduces turnover and raises morale, and can thus lower costs and improve productivity. In addition, firms that already pay a decent wage and realize these kinds of efficiencies should not have to radically alter their bids to comply with the Executive Order. This means the new rule can allow Federal agencies to select from a higher-quality group of bidders without a marked increase in costs—a fact that is borne out by empirical studies of municipal government contracts.
This Executive Order will also give a boost to hardworking Americans struggling to make ends meet, and the President still believes that Congress should act to do the same for millions more.
A presentation prepared by the Council of Economic Advisers, “The Economic Case for Raising the Minimum Wage,” can be viewed below.
- Posted byon February 7, 2014 at 9:30 AM EST
Today’s report is another reminder of both the progress that has been made and the challenges that remain. Businesses have now added 8.5 million jobs over the last 47 months and the unemployment rate ticked down to its lowest level in more than five years. But the economy is still healing from the Great Recession and steps are still needed to expand economic opportunity. Given the elevated long-term unemployment rate, extending emergency unemployment benefits for the 1.7 million workers who lost them is critical. At the same time, the President will continue to focus on action, both pushing forward on priorities with Congress and using his pen and his phone to expand opportunity and growth.
FIVE KEY POINTS IN TODAY’S REPORT FROM THE BUREAU OF LABOR STATISTICS
1. The private sector has added 8.5 million jobs in 47 consecutive months of job growth. Today we learned that total nonfarm payroll employment rose by 113,000 in January, due to a 142,000 increase in private employment together with a 29,000 decline in government jobs. Private sector job growth was revised up for November (to 272,000) and December (to 89,000) so that over the past twelve months, private employment has risen by 2.3 million, or an average of 191,000 per month. These figures account for several data revisions released today, including benchmarking the survey-based data to more comprehensive tax records, updating the seasonal adjustment factors, and reclassifying a handful of industries.
2. While the overall unemployment rate continues to fall, it still remains unacceptably high, reflecting more than 3.6 million long-term unemployed. The unemployment rate has fallen 1.3 percentage point in the last 12 months, and fell in January 0.1 percentage point, even as the labor force participation rate rose 0.2 percentage point. But as of January 2014, persons unemployed 27 weeks or more represent 2.3 percent of the labor force, more than double its average prior to the recession. These figures provide a stark reminder that despite the progress that has been made, the after-effects of the recession still linger and are creating hardship for many families. For this reason, the President has called on Congress to reinstate the extended unemployment insurance benefits that expired at the end of 2013, and in the absence of congressional action, the President will use his own authority to forge ahead with efforts to help connect the long-term unemployed with new jobs. Last week, the President announced commitments from over 300 companies – including 80 of the nation’s largest businesses – to adhere to a new set of best practices that will ensure recruiting processes do not disadvantage people who have been out of work, along with new funding for partnerships that connect the long-term unemployed to jobs.
- Posted byon February 6, 2014 at 12:47 PM EST
This week has seen the release of a Congressional Budget Office (CBO) analysis that refuted claims by opponents of the Affordable Care Act (ACA) that it is a “job killer” and demonstrated that, by giving families more options for obtaining affordable health insurance outside the workplace, the ACA will make it easier for people take a risk and start a business, take time out of the labor force to raise a family, or retire when they are ready.
As CBO made clear, however, its analysis was not a comprehensive analysis of how the ACA will affect the labor market in particular or the economy as a whole. This blog post illustrates six ways that the ACA is helping the labor market, laying the foundation for future economic growth, and improving families’ financial security and well-being.
1.Putting more money in families’ pockets, boosting demand, and bringing down unemployment today. As of January 1, more than 2 million people had selected a plan in the health insurance marketplace, and nearly 80 percent of those people will – thanks to the ACA – benefit from tax credits to help pay their premiums. All told, the Congressional Budget Office estimates that over the entirety of 2014, 5 million people will benefit from premium tax credits and help with cost-sharing averaging $4,700 per person. In 2015, 11 million people are estimated to benefit, rising to 19 million in 2016. Many millions more will gain affordable health insurance coverage through Medicaid.
These provisions of the ACA make it easier for families to access health care services and to meet other pressing needs, which will increase the demand for goods and services throughout the economy at a time when the unemployment rate is still elevated. For this reason, as CBO Director Doug Elmendorf testified, the ACA “spurs employment and would reduce unemployment over the next few years.” The ACA is thus – today – helping ensure that every American who wants a job can find one.
2. Helping slow the growth of health care costs, boosting hiring in the near term, and bolstering workers’ paychecks. The United States is currently experiencing a historic slowdown in the growth of health care costs. From 2010 to 2012 real per-capita health spending grew at an average annual rate of just 1.1 percent, and preliminary data and projections imply that this slow growth continued in 2013. The spending growth rates recorded over the last few years are the slowest on record, and less than one-third the long-term historical average of 4.6 percent that stretches back to 1960.
- Posted byon January 30, 2014 at 9:33 AM EST
Economic growth was solid in the fourth quarter, a testament to the resilience of American businesses and families. The private sector’s strong performance in the fourth quarter caps off its fastest year of growth since 2003. And over the four quarters of 2013, real GDP grew 2.7 percent, its strongest rate in three years. Nevertheless, the unemployment rate is still unacceptably high, and too many Americans are still looking for a job and fighting to make ends meet. In his State of the Union address on Tuesday night, President Obama outlined his plans to build on the progress made to date and ensure 2014 is a year of action, with steps to increase growth, create new jobs, and expand economic opportunity.
FIVE KEY POINTS IN TODAY’S REPORT FROM THE BUREAU OF ECONOMIC ANALYSIS
1. Real gross domestic product rose at a solid 3.2 percent annual rate in the fourth quarter, the 11th consecutive quarter of growth. Looking at the various components of GDP, growth in consumer spending picked up from the previous quarter, as did exports, business investment was in line with its recent performance, but Federal spending fell sharply, and housing posted its first quarterly decline since 2010. In the last two quarters economic growth accelerated to a 3.7 percent annual rate and over the four quarters of 2013, real GDP grew 2.7 percent, up from 2.0 percent in 2012. (Note that economists generally prefer to measure growth on a Q4/Q4 basis because that reflects what happened to the economy just in 2013, the alternative annual measure of growth also places considerable weight on what happened to the economy in 2012 and thus does not provide as meaningful a measure.)
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