Politics

Washington Post Fact Checker Calls Out Obama's "Minimum Wage Increase Doesn't Cost Jobs" Claim

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The Washington Post's Fact Checker called out President Obama for his recent claim that there is "no solid evidence that a higher minimum wage costs jobs."  

Riana/Wikimedia Commons

Obama delivered the questionable remarks at a Center for American Progress-hosted event in the nation's capital on Wednesday. His speech touched on the importance of upholding Social Security and Medicare entitlements, the insiduous threat of growing inequality, the 1 percent, and minimum wage increases. 

The president applauded both New Jersey's voter-approved minimum wage raise and the D.C. City Council's recently announced support for an increase in the city's minimum wage to $11.50/hour. He followed up with a proclamation of his own support:

I agree with those voters, and I'm going to keep pushing until we get a higher minimum wage for hard-working Americans across the entire country.  It will be good for our economy. It will be good for our families.  

He then assured the audience that enacting such a policy would not result in the unintended consequences for the poor that they might have heard about:

Now, we all know the arguments that have been used against a higher minimum wage.  Some say it actually hurts low-wage workers -- businesses will be less likely to hire them.  But there's no solid evidence that a higher minimum wage costs jobs, and research shows it raises incomes for low-wage workers and boosts short-term economic growth.  

The Post Fact Checker, which is a non-partisan blog checking politicians' claims for accuracy, said they approached the president's statement with caution:

The Fact Checker generally hesitates to wade into messy economic debates [since economists have a hard time reaching a consensus]…But here's the president of the United States, essentially saying that the debate has been settled. Is that really the case?

The Fact Checker's conclusion? No, it's not really the case

The White House, in support of the president's comment, pointed to a section of the 2013 Economic Report of the President (pages 120-121). The report noted that most economists had once believed an increase in the minimum wage would reduce employment but that "the consensus view among economists has since shifted as more evidence has accumulated."  It also cited a 2009 meta-analysis of 64 studies of the minimum wage that found "no evidence of a meaningful adverse employment effect" of the minimum wage.

The problem is that while there may be a new consensus emerging on the left-leaning side of economic theory, there is an equally fierce response from other economists.

In 2006, economists David Neumark and William Wascher published a survey of more than 100 studies, and came to an opposite conclusion, directly contradicting the results of the so-called New Minimum Wage Research. They found that the majority of the studies showed that "raising the minimum wage leads to economic distortions and often has unintended adverse consequences for the employment opportunities of low-skilled workers."

Economist Arindrajit Dube and others came up with a new approach in 2010, looking at the impact in counties adjacent at different states, that bolstered the findings of the new minimum wage forces. But economists Jonathan Meer and Jeremy West this yearfired back with a study that found that minimum wage hikes reduce net job growth because of the effect on expanding companies. (In October, Dube responded that their supposed job losses were occurring in the sectors without minimum wage workers, which in turn prompted this rebuttal by Meer and West.) And a 2011 study from economists at the London School of Economics and the Central Bank of Turkey found higher minimum wages increased unemployment.

In conclusion, the Fact Checker, said, "To flatly declare the debate is over is misleading.  He did not quite say there was no evidence–but he came close." They awarded Obama two "Pinocchios."

The president also implied that higher wages wouldn't result in higher prices for consumers:

Others argue that if we raise the minimum wage, companies will just pass those costs on to consumers. But a growing chorus of businesses, small and large, argue differently. 

The Post did not tackle this claim, but it is also dubious. At least one meta-analysis on the price effects of the minimum wage found that a 10% minimum wage increase in the US raises food prices by 4% and overall prices by 0.4%. Other recent research found that a 10% minimum wage increase raised prices by .7%.

Obama's remarks come in light of fast food strikes for higher wages, multiple local and state-wide minimum wage increases across the country, and his own support for the congressional Democrats' proposal to raise the federal minimum wage to $10.10/hour and peg it to inflation. 

Watch a Reason TV interview with a few of this week's fast food strikers in New York City: