Bernstein: Minimum Wage Increase Is Significant Net Plus for Low-Wage Workers

February 19, 2014 at 11:35 am

“[O]n balance, low- and moderate-income Americans are big winners from a higher minimum wage, which would raise earnings and incomes, lower poverty and inequality, and do so at no net cost to the federal budget,” CBPP Senior Fellow Jared Bernstein writes in summarizing the Congressional Budget Office’s (CBO) new minimum wage analysis.  CBO estimates that raising the minimum wage to $10.10 by the second half of 2016 would directly benefit 16.5 million workers and lift 900,000 people out of poverty, though it also would reduce total employment by about 500,000.

His post, at the New York Times’ Economix blog, concludes:

There is no policy I can think of that generates only benefits without any costs, and policy makers always have to weigh the two sides.  In the case of the minimum wage, on the benefits side of ledger, the budget office shows that 16.5 million low-wage workers would directly get a much-needed pay increase at no cost to the federal budget.  Though the budget agency did not analyze longer-term results for these workers, it’s also the case that when those displaced by the increase get their next low-wage job, they too will benefit from a higher paycheck than would otherwise be the case.

As I’ve stressed many times on this blog, policy makers need to be concerned about the quantity of jobs, and pursue policies that will increase that number.  But they also have to worry about job quality, especially in the low-wage sector, where the decline in the real value of the minimum wage, the increase in earnings inequality (meaning less growth finds its way to the low end of the wage scale), and the low bargaining power of the work force have placed strong, negative pressure on wage trends for decades.

With such job-quality concerns in mind, I’d say the long history of research shows that increasing the minimum wage is a simple, effective policy that achieves its goal of raising the value of low-wage work with minimal distortions at no cost to the federal budget.  The Congressional Budget Office report further confirms that conclusion.

Click here for the full post.

Why Health Reform Provides Subsidies in All States

February 18, 2014 at 4:18 pm

Two CBPP board members — Henry Aaron and Robert Reischauer — and I are among the 48 economists who filed a brief in federal court yesterday explaining why health reform authorizes the provision of premium subsidies, an essential part of health reform, in all states.

Some opponents of health reform have filed a lawsuit claiming that the premium tax credits to help low- and moderate-income people buy coverage through the new health insurance exchanges are only available in states that have set up their own exchanges, not in states with a federally operated exchange.  But, as Judith Solomon has explained, this argument rests on a distorted reading of the health reform law.

Last month the U.S. District Court for the District of Columbia soundly rejected the plaintiffs’ claim.  The case is on appeal to the U.S. Court of Appeals for the D.C. Circuit, which is where we filed our brief.

The economists’ letter explains that health reform is premised on three interrelated reforms: requiring insurers to offer coverage to all eligible applicants irrespective of health status, an individual mandate to buy insurance, and premium subsidies for participants in all exchanges.  “Economic analysis confirms what Congress understood: the [Affordable Care Act] cannot function without premium subsidies,” we write.

Other signers of the friend-of-the-court brief include Nobel laureates Peter Diamond and Eric Maskin, former Congressional Budget Office Director Alice Rivlin, and former Treasury Secretary Lawrence Summers.

2009 Recovery Act Kept Millions out of Poverty

February 18, 2014 at 3:06 pm

The Washington Post points out that the 2009 Recovery Act, signed five years ago yesterday, accomplished much more than its critics acknowledge.  When it comes to using the safety net to keep people out of poverty, for example, the Recovery Act was probably the most effective piece of legislation since the 1935 Social Security Act, as our 2011 analysis explained.

Six Recovery Act provisions — three new or expanded tax credits, two expansions of unemployment insurance, and a SNAP (food stamp) benefit expansion — kept 6.9 million Americans out of poverty in 2010.  This estimate uses an alternative poverty measure based on National Academy of Sciences recommendations (a forerunner to the Supplemental Poverty Measure that the federal government now regularly reports) that considers the effect of government benefit programs and tax credits as well as cash income.

As the graph shows:

  • Expansions in the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) kept 1.6 million people out of poverty.
  • The Making Work Pay tax credit, which expired at the end of 2010, kept another 1.5 million people out of poverty.
  • Expansions in unemployment insurance benefits kept 3.4 million people out of poverty.
  • Expansions in SNAP benefits kept 1 million people out of poverty.

These figures total more than 6.9 million in part because some people were kept above the poverty line by more than one program.  The 6.9 million total, though, counts each person only once.

And, as the graph shows, existing (pre-2009) policies to promote family income also kept millions of Americans out of poverty in 2010.

Moreover, these are just the initial effects of government assistance on recipient households.  They don’t show the ripple effect across the economy as government assistance allowed struggling consumers to continue to buy goods and services, despite the crippling recession, contributing to economic growth.

To be sure, these figures don’t mean that government assistance staved off all, or even most, recession-related hardship.  But they show that government assistance kept millions of Americans above the poverty line during the worst economic downturn since the Great Depression.  That’s no small accomplishment.

In Case You Missed It…

February 14, 2014 at 2:42 pm

This week on Off the Charts, we focused on the federal budget and taxes, health care, state budgets and taxes, and safety net programs.

  • On the federal budget and taxes, Paul Van de Water explained that proposed budget process changes before the House Budget Committee would be counterproductive.  Joel Friedman argued that House-approved changes to military pensions would violate a key principle of the Murray-Ryan budget deal — that policymakers should not raise defense spending by cutting domestic programs.  And we explained why a “clean” bill to raise the debt limit is a welcome change from Republicans’ recent — and costly — strategy of holding the debt limit hostage.
  • On health care, Edwin Park explained why delaying health reform’s employer responsibility requirement is no reason to delay the individual mandate.  He also warned against believing the hype regarding forthcoming payment rates for Medicare Advantage plans.  Jesse Cross-Call explained that states’ failure to adopt health reform’s Medicaid expansion has a severe human cost.  Sarah Lueck explained that the big concern for the new insurance marketplaces is enrollees’ health, not age.
  • On state budgets and taxes, Erica Williams explained that a recent push by several states to expand earned income tax credits is great news for low- and moderate-income working families.  Michael Mazerov highlighted new evidence that cutting state taxes is a poor way to attract entrepreneurs.  We interviewed Vincent Palacios about our major new report that ranks states on their use of common-sense budget tools.
  • On safety net programs, Zoë Neuberger argued that Agriculture Secretary Tom Vilsack should reject Congress’s recent call to add white potatoes to the WIC program.

In other news, we issued a paper on how altering accounting for federal credit programs would artificially inflate their costs.  We also updated our chart book on the legacy of the great recession.

A variety of news outlets featured CBPP’s work and experts recently.  Here are some highlights:

CBPP’s Chart of the Week:

10 Budgeting Tips for Long-Term Financial Planning
February 13, 2014

The Short Life of a Hard Choice
New York Times
February 12, 2014

Big Issue for Insurance Marketplaces Is Enrollees’ Health, Not Age

February 14, 2014 at 1:02 pm

Despite what you may have heard, the share of enrollees in the new insurance marketplaces who are young isn’t the most critical factor in determining whether the marketplaces’ risk pool will be well balanced and whether their premiums may have to increase next year.  Instead, the health status of enrollees is far more important.  That’s the conclusion of a recent Commonwealth Fund-organized gathering of insurers, actuaries, researchers, and federal officials.

The misplaced idea that success hinges on whether enough young people sign up — since young people are generally healthier and thus less costly to cover — has gained undeserved traction in recent months.  And the release of the latest federal data on marketplace enrollment, including a breakdown by age, will likely bring renewed attention to the number of young enrollees.  But, as a Commonwealth report summarizing the meeting concludes, “there is no single right percentage for young adult participation.”

We made the same point a few weeks ago, explaining that the health status of enrollees at all ages is far more important in producing a balanced risk pool and ensuring that the marketplaces will have stable and affordable premiums over time.  Also important is how well each insurer predicted who would sign up for coverage this year.  If an insurer’s enrollees cost far more than it anticipated in setting its 2014 premiums, it might raise premiums in 2015 to better reflect its expected costs.

The Commonwealth Fund report also highlights some factors that could limit any losses that insurers may experience this year, which in turn could tamp down any 2015 premium increases.

For example, health reform’s risk corridors (along with its other risk-mitigation programs) limit insurers’ potential losses as the law’s major reforms take effect in the individual market and the new marketplaces become fully established.  And two health reform requirements — that insurers justify premium increases of 10 percent or more and spend a set percentage of their premiums on medical care rather than administration and profits — are expected to help hold down any rate increases in 2015.