Raising the Minimum Wage Is Still a Good Idea for Texas

Another week, another polarizing result from the (nonpartisan) Congressional Budget Office. The new one, which was released yesterday, is about how a minimum-wage increase would affect employment and family income around the country. Like the last report, which had some controversial projections about the Affordable Care Act’s effects on the labor force, it’s given ammunition to both sides in Washington: to Democrats (who have been calling for an increase in the federal minimum wage in recent months) and Republicans (who oppose it). According to the CBO’s projections hiking the federal minimum wage to $10.10 an hour, from the current $7.25, would indeed increase overall compensation to low-wage workers by some $31 billion. But the number of workers who would benefit would, per CBO, decline, as companies reduce the number of workers to contain labor costs; total employment would decline by about 500,000 people.

I wanted to offer a comment on this because I’ve repeatedly argued in favor of raising the minimum wage, specifically in Texas (which is one of the states where the minimum wage is, by default, the same as the federal minimum). I made that argument in my book, and elaborated on it here at Texas Monthly, exactly one year ago. I still think raising the minimum wage would be a good idea–especially in Texas. I’ll explain why after the jump.

The Labor Force Participation Rate Problem

This morning brought some bad news for Obamacare and its supporters, as the Congressional Budget Office put out a new budget and economic outlook for 2014-2014 which projected, among other things, that the Affordable Care Act “will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024.”

Or to put it more simply, as many media accounts of the report have done, the nonpartisan number-crunchers at the CBO are saying that the Affordable Care Act will reduce the number of workers in the country by about 2 million people, or cost the country between 2.0 to 2.5 million jobs between 2017 and 2024. The White House, of course, doesn’t like such ways of summarizing the situation, and quickly sent out an irritated statement: “Claims that the Affordable Care Act hurts jobs are simply belied by the facts in the CBO report.”

Technically speaking, the White House has a point. The CBO report says that the reduction in total number of hours worked will be “almost entirely because workers will choose to supply less labor”. In other words, the ACA will constrain the labor supply, rather than the demand for labor. Nonetheless, Republicans are correct to say that the CBO is projecting that the law will cost the country the equivalent of some 2 million full-time jobs. But I’d like to set aside the political score-keeping, and the general debates over the law, and focus on something I found striking about the report.

If you follow national political and economic news, you’ll surely have noticed increasingly frequent references to the country’s labor force participation rate. And because the CBO’s new outlook projects a further decline in America’s labor force participation rate as a result of the Affordable Care Act, you’ll be hearing a lot about this metric this week. And if you don’t find the CBO’s projections about this metric alarming, you should; I’ll explain why, after the jump.

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