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Why do businesses love the minimum wage?

Evan Soltas

Feb. 20, 2014

Welcome to Wonkbook, Wonkblog's morning policy news primer by Evan Soltas. Send comments, criticism, or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here.

Wonkbook's Number of the Day: $2.25 trillion. That's how much the International Monetary Fund thinks the global economy could grow if the U.S. and other nations made these proposed reforms.

Wonkbook's Graph of the Day: This 50-state chart shows how the 1 percent is gobbling up income.

Wonkbook's Top 5 Stories: (1) labor and business; (2) why wonks need to watch the law; (3) monetary policy's last dance; (4) why Obamacare won't meet its goals; and (5) net neutrality, take two.

1. Top story: Why do businesses love the minimum wage?

Why backing the minimum wage hike makes sense -- for Wal-Mart. "Looks like Wal-Mart is in an open-minded mood these days, telling Reuters that it's "looking at" the idea of supporting a hike in the federal minimum wage. Wait, what? That's shocking at first, given the ferocity with which the world's biggest retailer has fought unions trying to organize workers around higher wages. If you think about it, though, it makes a lot of financial sense -- because, as spokesman David Tovar put it, the 140 million people who shop at its stores every year would "now have additional income."" Lydia DePillis in The Washington Post.

@JeffYoung: Maybe the Walmart/minimum wage thing is a big misunderstanding. "Wages? Absolutely, we support paying the minimum!"

...And why Gap is raising its minimum wage to $10. "Clothing retailer Gap, Inc. announced Wednesday that it will raise its hourly minimum wage to $10, a change that will affect 65,000 U.S. employees. GAP employees who are now earning the minimum wage will make $9.00 in June of 2014 and $10 in June of 2015. GAP, which also owns Banana Republic, Old Navy, Piperlime, Athleta, and Intermix, operates in more than 50 countries and employs 135,000 people around the world." Aviva Shen in Think Progress.

@jonfavs: So who will be the first Republican to attack GAP as a job-killer for raising their minimum wage to $10?

VW workers may block southern U.S. deals if no unions. "Volkswagen's top labor representative threatened on Wednesday to try to block further investments by the German carmaker in the southern United States if its workers there are not unionized..."I can imagine fairly well that another VW factory in the United States, provided that one more should still be set up there, does not necessarily have to be assigned to the south again," said Bernd Osterloh, head of VW's works council. "If co-determination isn't guaranteed in the first place, we as workers will hardly be able to vote in favor" of potentially building another plant in the U.S. south, Osterloh, who is also on VW's supervisory board, said." Reuters.

Inequality loves the city. "If you want to live in a more equal community, it might mean living in a more moribund economy. That is one of the implications of a new study of local income trends by the Brookings Institution, the Washington research group. It found that inequality is sharply higher in economically vibrant cities like New York and San Francisco than in less dynamic ones like Columbus, Ohio, and Wichita, Kan." Annie Lowrey in The New York Times.

SOLTAS: Is the U.S. better off without unions? "[T]he U.S. must find ways to replace what good unions did. It must restore power to labor in a world without Labor...What the Chattanooga defeat should tell us is that labor unions probably can't be an answer to those problems. Economic change, particularly the rise of global competition, killed them. U.S. policy must aim to replace unions, not revive them." Evan Soltas in Bloomberg.

BARRO: Minimum-wage increases should cause job losses. "[T]he minimum wage trade-off presented by CBO looks awfully favorable. For every person put out of work by the minimum wage increase, more than 30 will see rises in income, often on the order of several dollars an hour. Low- and moderate-income families will get an extra $17 billion a year in income, even after accounting for people who get put out of work; for reference, that's roughly equivalent to a 25% increase in the Earned Income Tax Credit." Josh Barro in Business Insider.

HENNESSEY: How CBO's minimum wage analysis changes the debate. "I think CBO's analysis is improving the minimum wage debate. President Obama and his allies have been selling this proposal as a free lunch, a policy that will raise pay for some with no costs for anyone: "Give America a raise." Proponents of raising the minimum wage now must contend with a reputable nonpartisan analysis that the proposal has costs as well as benefits. Congress must decide whether higher wages for some are worth destroying jobs for others." Keith Hennessey on his blog.

@amitabhchandra2: CBO ends the view that a min-wage increase is a free-lunch...something that academic economists should have done

VINIK: Where are the Republican ideas to raise wages? "Let's stipulate that conservatives are right. Raising the minimum wage is a bad idea, because it will drastically reduce employment. While it may lead to wage growth for some workers, it will also hurt many others who lose their jobs altogether. OK. Given that, how do Republicans plan to increase wages?" Danny Vinik in The New Republic.

PETHOKOUKIS: Please, time to finally move beyond raising minimum wage. "Senator Marco Rubio, who may well run for the GOP presidential nomination, has made wage subsidies one of key element of his anti-poverty agenda. The policy window may be opening here for an effective, anti-poverty idea that both Democrats and Republicans could (should) favor." James Pethokoukis for the American Enterprise Institute.

SALAM: The case of the missing dishwasher. "If we really do see bigger employment impacts over time, and if these employment impacts disproportionately impact foreign-born non-citizens who are ineligible for transfer payments, the poverty impact beyond 2016 could prove substantial." Reihan Salam in National Review Online.

Music recommendations interlude: Taken by Trees, "To Lose Someone."

Top opinion

ROHATYN AND SLATER: Private capital for public works. "The Bridge Act would set up an independent, nonpartisan financing authority that would provide loans and loan guarantees to states and localities, helping them fill gaps in infrastructure funding by attracting private investment for transportation, ports, water, sewer and other projects. The authority would finance 49% or less of a project's cost." Felix Rohatyn and Rodney Slater in The Wall Street Journal.

KLEIN: The future looks dull from here. "[T]he grip of history is slackening, at least in the nation's capital. The wars are ending. Some of our economic wounds are healing, and others, sadly, we're choosing to live with. Raising the debt ceiling has become routine again. We've gone from Congress passing legislation that our children will read about to Congress passing almost nothing at all. For at least the next few years, governmental paralysis appears unyielding. An unusually interesting era in U.S. politics is giving way to an unusually dull one...[A]bsent an event that upends the country, Washington seems likely to be a lot less important over the next few years than it was over the past few years. The capital just isn't where the action is." Ezra Klein in Bloomberg.

ORSZAG: Squeezing healthcare jobs, finally. "[T]he accumulating data show that we are indeed experiencing a noticeable decline in health-care employment growth. From 1990 to 2005, according to the Bureau of Labor Statistics, employment in health care grew by an average of 2.8 percent per year. But over the past year, it has grown by only 1.4 percent. And in the past two months, it has barely changed at all -- and that is something that hasn't happened since data collection began...Anyone who remains skeptical that health-care costs are decelerating should take pause from recent job trends." Peter Orszag in Bloomberg.

YGLESIAS: The real problem with supersizing Comcast. "The real issue posed by the merger, however, relates not to cable television but to broadband. And it pertains not so much to competition per se as to regulation. A world in which the broadband Internet market is both uncompetitive and highly concentrated is one in which the stakes for proper regulation are extremely high." Matthew Yglesias in Slate.

CRAWFORD: How to tackle the great American cable monopoly. "The trouble with the deal is not so much that it creates a monopoly seller of cable connections but that, by uniting two such monopolies, it creates a media empire that will wield immense power over many markets: internet access, applications such as telemedicine that use a lot of data, and television programming." Susan Crawford in The Financial Times.

War is terrible interlude: Spot the sniper, in art.

2. The long policy reach of the law

NSA weighs retaining phone data for lawsuits. "A number of government lawyers involved in lawsuits over the NSA phone-records program believe federal-court rules on preserving evidence related to lawsuits require the agency to stop routinely destroying older phone records, according to people familiar with the discussions. As a result, the government would expand the database beyond its original intent, at least while the lawsuits are active." Devlin Barrett and Siobhan Gorman in The Wall Street Journal.

Justices to hear arguments on Obama's green regs on Monday. "President Obama in recent days has been announcing muscular executive actions to address climate change, making good on his promise to act on pressing problems "with or without Congress." On Monday, the Supreme Court will consider the limits of that approach, in a case on greenhouse gas emissions. The justices are poised to decide whether the Obama administration went too far in trying to regulate emissions from stationary sources like power plants." Adam Liptak in The New York Times.

Nebraska judge blocks governor's Keystone XL decision. "Lancaster County District Court Judge Stephanie Stacy sided with three landowners who argued Nebraska's governor shouldn't be able to sign off on the pipeline's route. The governor, Republican Dave Heineman, was handed that power in a law the state Legislature hastily passed in 2012. But the court ruled that under the state's constitution, only Nebraska's Public Service Commission could approve such a pipeline route." Alison Sider and Alicia Mundy in The Wall Street Journal.

Second judge ponders Virginia's same-sex marriage ban. "A Virginia federal judge said Wednesday that he has not decided whether he needs to rule on a class-action lawsuit seeking the right for same-sex couples in the state to marry, since another federal judge already has struck down the state's ban...Urbanski said he would make his decision "in due course" but would not hold oral arguments either way. The lawyers agreed that arguments were unnecessary and said Urbanski could rely on briefs in his case and arguments made before Wright Allen earlier this month if he decides to rule on the case rather than postpone it." Robert Barnes in The Washington Post.

Knot theory interlude: To tie a tie.

3. Monetary policy's last dance

Fed puts rate hikes on the radar. "Still, a "few" Fed officials argued at a Jan. 28-29 policy meeting that increases might be needed soon to prevent the economy from overheating, according to minutes of the meeting released Wednesday. These officials were most likely from the Fed's band of policy "hawks" who have largely failed in resisting the central bank's easy-money policies. The fact that the subject came up at all in January shows how the central bank's policy debate is slowly and subtly evolving and might offer the first glimmers on a distant horizon of a Fed move. Surprising declines in the unemployment rate in recent months have forced officials to start discussing their plans for eventual rate hikes, what will impel them to act and how to guide the public about their likely course in the months ahead." Jon Hilsenrath in The Wall Street Journal.

Explainer: The key passages of the Fed minutes. Jon Hilsenrath in The Wall Street Journal.

The taper worked! And other takeaways from the Fed minutes. "The Fed was confident enough in the economic outlook to continue reducing its stimulus by another $10 billion during its January meeting. But unexpectedly weak job growth in December coupled with persistently low inflation led a few Fed officials to at least raise the question of whether the taper should continue." Ylan Q. Mui in The Washington Post.

Fed's Bullard, a bellwether, expects the Fed's taper to proceed steadily. "A strong U.S. economy facing its best prospects since the financial crisis will likely allow the Federal Reserve to steadily reduce its monthly bond purchases, St. Louis Fed President James Bullard said Wednesday in an interview with The Wall Street Journal. Mr. Bullard said the recent decline in the jobless rate is for real, downplaying concerns that it is partly driven by a decline in the number of Americans in the labor force." Pedro Nicolaci Da Costa in The Wall Street Journal.

Fed, European banks face off on new rule. "European banks and the Federal Reserve began a chess match over new rules for U.S. units of foreign banks, with overseas firms expected to try and limit the impact and Fed officials vowing to prevent banks from evasion. The jockeying over the Fed's new rules could further ruffle tensions between the U.S. and Europe over what European officials see as a unilateral abandonment of a globally agreed-to approach for financial regulation." Geoffrey Smith, Ryan Tracy and Stephanie Armour in The Wall Street Journal.

Amid cold, home construction stalls. "U.S. housing starts fell 16% last month to a seasonally adjusted annual rate of 880,000, the lowest level since September, the Commerce Department said Wednesday. That was down from an upwardly revised December rate of 1.05 million new homes built, marking the largest month-over-month decline since February 2011. Economists surveyed by Dow Jones had expected a 4.9% drop in starts to an annualized rate of 950,000. Building permits, a sign of future construction, fell 5.4% to a seasonally adjusted annual rate of 937,000 last month from December's upwardly revised rate of 991,000. Economists predicted a 1.1% decline to an annualized rate of 980,000." Ben Leubsdorf in The Wall Street Journal.

Global bond frenzy raises concerns. "Prospecting for oil in Brazil, manufacturing steel in Russia, erecting skyscrapers in China: Global bond investors have financed some of the grandest investment projects taken on by emerging economies in recent years. But as growth falters in a number of developing nations, economists and regulators have become increasingly worried about the consequences of this borrowing frenzy and the risk that the mutual funds and hedge funds that have largely replaced more stable commercial banks as global financiers might all decide to rush for exits at the same time...The underlying problem, Mr. Mather said, is that bond investors with little or no experience in emerging markets piled in to pursue higher yields." Landon Thomas Jr. in The New York Times.

IMF: Want $2.25 trillion? "Efforts to rebalance, reform product and labour markets, and boost infrastructure investment could increase global growth by 0.5 percentage points a year and give a significant boost to global living standards, the report says...For example, the IMF reform scenario assumes that China adopts a fully flexible exchange rate; countries cut service industry regulation and labour protection laws by 20 per cent; while the US, Germany, Brazil, India and Indonesia raise public investment by 0.5 percentage points of total output." Robin Harding in The Financial Times.

Quiz: Who was the richest man in all of history?Zachary A. Goldfarb in The Washington Post.

Data: Inventors are scared of elections. "Both Republicans and Democrats like to talk about how theirs is the party of innovation. But what really matters isn't who's in power -- it's how certain the innovators feel about what government policy will look like in the future. That's the conclusion of a new study from Indiana University's Kelley School of Business, which found that in a dataset of 43 countries, innovation dipped during election years, which tend to be periods when the future course of laws and regulation are in doubt." Lydia DePillis in The Washington Post.

Explainer: A visual history of President Obama's economic policy. Zachary A. Goldfarb in The Washington Post.

The best case that the war on poverty has failed. "28.7 percent of the country would be in poverty today without government policies to help them -- actually higher than it was 50 years ago. And so, in that sense, it's hard to say we've won the War on Poverty when nearly 1 in 3 Americans lacks, without the government's help, the sustenance necessary to meet the basic needs of life." Zachary A. Goldfarb in The Washington Post.

Literary interlude: Awful books by great authors.

4. Why Obamacare won't meet its goals

1.5 million young adults must still sign up for Obamacare to meet projections. Don't count on it. "[B]ased on new CBO numbers, the White House is about 1.5 million young adults away from its goal of enrolling 2.34 million young adults by the end of March. And it will take much more than a Massachusetts-like surge to hit that mark. Under RomneyCare, the percentage of 18- to 34-year-olds did inch up as the enrollment period dragged along ... but in any given month those young adults never represented more than about one-third of all enrollees in the program's private plans. Under the ACA thus far, 18- to 34-year-olds account for about one-quarter of all enrollees ... and to get to the White House's stated goal, young adults would have to account for about one-half of all new sign-ups that CBO expects to see in February and March." Dan Diamond in California Healthline.

Pictures: Faces of the Affordable Care Act. The Wall Street Journal.

California just beat its Obamacare signup goal weeks early. "California announced Wednesday that it has beat its 2014 ObamaCare enrollment goals with roughly five weeks left before the first sign-up period closes. Covered California, the state's health insurance marketplace, registered 728,410 people before the end of January and about 100,000 more in the first two weeks of February, officials said. Another 877,000 patients were determined eligible for Medicaid in the state, which opted to expand the low-income health insurance program under the Affordable Care Act, the announcement continued." Elise Viebeck in The Hill.

Latino enrollment for health insurance still lags. "At least one in three Latinos in the U.S. are uninsured, a far higher rate than whites or blacks. Yet, advocates say their Obamacare enrollment is lagging for a variety of reasons...Only 19% of Latinos and 20% of blacks have looked for health insurance on the exchanges, compared to 28% of whites, according to a Commonwealth Fund survey. In California, fewer than 20% of applicants identified themselves as of Hispanic, Latino or Spanish origin, according to the exchange. That compares to the estimate that about 46% of subsidy-eligible Californians are Latino. Enrollment in the Golden State is being watched closely since it's considered a model for the rest of the country." CNN.

Kind of a music interlude interlude: "Eye of the Tiger" on a dot matrix printer.

5. Net neutrality, take two

FCC to rewrite net neutrality rules, won't appeal court ruling. "The Federal Communications Commission said Wednesday it will rewrite sweeping broadband Internet rules known as net neutrality, ending a legal battle that has thrown into question the agency's ability to protect consumers on the Web. The FCC said new rules will ban Internet service providers such as Verizon and Time Warner Cable from blocking Web sites or charging a firm like Netflix more for faster and smoother delivery of content." Cecilia Kang in The Washington Post.

The two secret weapons in the FCC's war on Internet throttling. "Wheeler's first step was to say he wanted to rewrite the FCC's net neutrality order to conform to the agency's existing authority, which the D.C. Circuit court affirmed. But backing up that promise is the threat of reclassification, or the act of turning Internet providers into regulated utilities under Title II of the Communications Act. Doing so would entitle the FCC to reinstate all the old rules about traffic blocking and discrimination that were just eliminated by the court." Brian Fung in The Washington Post.

The things that make you believe human nature is good interlude: Evidence from Norway.

Wonkblog Roundup

Why backing the minimum wage hike makes sense -- for Wal-Mart. Lydia DePillis.

Retail group ramps up inspections of Bangladesh textile plants. Howard Schneider.

Data: Inventors are scared of elections. Lydia DePillis.

The best case that the war on poverty has failed. Zachary A. Goldfarb.

The taper worked! And other takeaways from the Fed minutes. Ylan Q. Mui.

Who was the richest man in all of history? Zachary A. Goldfarb.

NAFTA's path, wrath and aftermath. Howard Schneider.

A visual history of President Obama's economic policy. Zachary A. Goldfarb.

Et Cetera

A trading system will reduce the pollution "dead zone" at the mouth of the Mississippi. Mark Peters in The Wall Street Journal.