In a speech today, our colorful vice president casually overstated one likely effect of increasing the minimum wage by, literally, about 3,000 percent.
Moving away from his ostensible area of expertise, foreign affairs, Joe Biden talked up the president’s proposal to raise the minimum wage to $10.10 an hour today, but he twice made an absolutely ludicrous claim: that the higher minimum wage would move 28 million people out of poverty. For perspective, that would be 20 percent of all Americans who hold a job. The right number according to the Congressional Budget Office, as Roll Call’s Steven Dennis points out, is 900,000 — that’s the number of people who live in households where before-tax, cash incomes would rise above the poverty line if the minimum wage were raised to $10.10 an hour. The CBO also estimates that this would be the net effect, while 500,000 jobs were lost over the next few years.
Biden was likely thinking, Dennis points out, of the number of people that the White House’s Council of Economic Advisers estimates would see a raise if the minimum wage were bumped to the new level. As the CBO numbers indicate, very few of those people are living below the poverty line.
Estimates about the exact poverty effects of the minimum wage do vary: Some economists think it would have a nearly negligible effect on poverty levels, because it would slow job creation and cut working hours more than wages would rise, largely redistributing income among low-wage workers rather than from rich Americans to poor Americans. Some estimates, meanwhile, predict a much larger cut in poverty, on the order of as many as 4 million Americans lifted above the threshold, cutting the number of poor Americans by around 10 percent. What isn’t widely disputed: A much higher minimum wage would change a great deal of employment arrangements while affecting only a small share of the people in poverty. A more direct approach to reducing poverty: raising the earned-income tax credit.
Elsewhere in his remarks, Biden also boasted that a minimum-wage hike would boost the economy by raising consumer spending, like the payroll-tax cut that the Obama stimulus bill included. There are a couple problems with this: The CBO estimates that a higher minimum wage would boost real wages by $2 billion, but that is a tiny number in the context of the economy and compared with the size of the $100 billion-a-year payroll-tax cut. Moreover, it’s not clear the payroll-tax cut really did work: While it seemed like a good idea to keep as a stimulative measure, its expiration does not seem to have hit the economy particularly hard, and small boosts to workers’ paychecks do not appear to have been quickly spent, as the Obama administration’s behavioral economists hoped they would.