Transcript: Council of Economic Advisers Chairman Jason Furman’s remarks on raising the federal minimum wage – Jan. 14, 2014
Partial transcript of remarks by Jason Furman, Chairman of the White House Council of Economic Advisers, on raising the federal minimum wage to $10.10 per hour at the Economic Policy Institute on Jan. 14, 2014:
…So, I wanted to start out by just putting a little bit of historical context on the minimum wage and showing you what I think is the single most striking fact about the minimum wage right now, which is that it is below where it was in inflation adjusted terms in 1950.
To put some context on the economy since 1950, real per capita GDP is up 242%. Real hourly wages are up 65%, which is disappointingly small given that GDP growth, and that’s another story, although not an entirely unrelated story.
If you look at real per capita household wealth – we only have these numbers since 1952 – they’re up 298%. And minimum wage adjusted for inflation comparable to these is down. 64 years without a raise for workers at the bottom.
That wasn’t always that way. The minimum wage was on an upward trend and it reached its peak in 1968 and has fallen by one-third since 1968. And that fact is an important part of the explanation for what we’ve seen in this economy since the late ’60s.
And there has been a lot of discussion of the 50th anniversary of the War on Poverty. The Council of Economic Advisers put out a report, and there were a lot of things in that report, but the most important point in it is if you look at the poverty rate and don’t take into account public policy, it’s actually gone up since 1967. And one of the important reasons for that is when you’re cutting the pay for people at the bottom by a third, you shouldn’t be that surprised that you’re not making a lot of progress on poverty when you just take into account people’s wages.
The War on Poverty, of course, was about a lot of things, including expanding assistance to low-income households.
Better things that came out of the War on Poverty eventually, not initially, better rewarding work through things like the Earned Income Tax Credit, nutrition assistance.
When you take all of that into account, we have made an immense amount of progress on poverty, and that’s why it’s so important to make sure that we’re doing things like extending emergency unemployment insurance, defending a robust nutrition assistance, making permanent a lot of the tax credits we’ve gotten for the Earned Income Tax Credit, the Child Tax Credit.
But to really make a lot more progress and to continue to make progress on poverty, we’re going to need to raise wages and to raise wages for all workers, and one of the important tools we have to help make that happen is raising the minimum wage.
The minimum wage doesn’t just matter for poverty; it matters for what President Obama has called the defining issue of our time which is inequality.
This graph shows you there’s a lot of dimensions of inequality.
This here shows you the ratio of women’s wages at the 50th percentile to the 10th percentile. That very closely tracks the value of the minimum wage.
And there have been a range of studies which have found that as much as one-third to one-half of increases in certain types of inequality has been due to the erosion in the value of the minimum wage.
Inequality, of course, is a much bigger phenomenon. It’s a set of issues very concentrated at the top, related to the middle. There’s a lot of causes of inequality but this is one of the important ones especially for inequality at the bottom.
Returning again to poverty, we’re now in a place where if somebody works full-time year-round and makes the minimum wage, they’re going to be paid $14,500. You add the tax credits they get to that and they’re still raising their family below the poverty line.
We fundamentally think that you’d want to set a minimum wage so if you’re working full-time year-round you’re going to be able to raise your family above the poverty line. And when you take into account the tax credits, the $10.10 that Sen. Harkin and Rep. Miller and President Obama all support would take you above that poverty line.
It would lift 1.6 million people out of poverty, and if you look in total, 8.8 million people in poverty would see their wages go up.
The federal level has often been a way to encourage states to raise their minimum wages and that what they do, in turn, encourages us. There’s 21 states and DC that have higher minimum wages. A lot of states are now indexing to inflation.
And one of the encouraging developments in the past year is that we’ve seen four states pass legislation to raise their minimum wages, and we’d like to see more states doing that in 2014. There’s no reason that anyone needs to wait for Washington to do this.
Minimum wage disproportionately benefits women, although it benefits an awful lot of men. It’s very focused and about half of the benefits go to low and moderate income families.
The fact that a third of the benefits go to families between $35,000 and $75,000, I don’t think is a defect in the policy. I think it’s one of the strengths in the policy. Those are families that may have a secondary earner working part-time, full-time at the minimum wage; they need a raise too. And about $75,000 that’s where a minority of the benefits go but many of those families also could use a raise in this economy.
It goes to a wide spectrum of ages. Only a small amount of it goes to teenagers. And it goes to a diverse set of families – a lot of them, you know, with children.
In terms of the case overall, its impact on our economy and jobs. One thing just to put it in context is we’re among the lowest of countries that are as rich as the United States is. Even with $10.10 an hour, we would still be relatively low compared to many of our peer countries.
This is not something that in the historical perspective of the United States would be particularly high in international. It’s very manageable.
And finally, I wanted to end on a slide that summarizes the research effort that John Schmitt put together…
This shows the range of studies on minimum wage that have been conducted and the impact they have on employment.
Some find a negative effect. Some find a positive effect. The vast bulk find zero effect. And that’s why John correctly summarized it as no evidence of a meaningful adverse employment effect.
And just a small thing about the economics professional, my guess is that a bunch of people found regressions – found plus 15, plus 20. They decided that was crazy so they kept that paper in a desk drawer and never got published. So the publication bias itself is likely to skew those studies in a negative direction. Even with that publication bias, you still see essentially zero in a meta analysis. And that’s the micro labor market – economics of it.
If you look broadly, increasing the purchasing power of workers in an economy like the one that we have today will at least in the short run provide a boost to aggregate demand and potentially help create more jobs.
So in summary, this is long overdue. Arguably, 64-years overdue to get to where we need to go. It matters a lot for poverty. It matters a lot for inequality.
A lot of the myths about who it goes to are wrong. A lot of the benefits are very tangible and very large, and it’s something we need to do.
- WhatTheFolly.com: Spotlight: Raising the federal minimum wage to $10.10 an hour
- WhatTheFolly.com: Transcript: EPI President Lawrence Mishel’s remarks on raising the federal minimum wage – Jan. 14, 2014
- WhatTheFolly.com: Transcript: Council of Economic Advisers Chairman Jason Furman’s remarks on raising the federal minimum wage – Jan. 14, 2014
- WhatTheFolly.com: Transcript: Sen. Tom Harkin’s remarks on raising the federal minimum wage – Jan. 14, 2014
- WhatTheFolly.com: Transcript: Rep. George Miller’s remarks on raising the federal minimum wage – Jan. 14, 2014
- WhatTheFolly.com: Transcript: Q&A w/ Sen. Tom Harkin & Rep. George Miller on raising the federal minimum wage – Jan. 14, 2014
- Economic Policy Institute: The Path Forward for Raising the Federal Minimum Wage to $10.10