Read on Twitter
1/ Thought I'd take a moment to expand on Rep. @RoKhanna's comments questioning the credibility of the new CBO minimum wage forecast. He is correct in that CBO economists have no particular expertise at analyzing the min wage... https://twitter.com/RoKhanna/status/1358997930703740928
2/ But more so, CBO economists don't have a particularly good track record in their actual area of expertise: forecasting federal budget deficits. As Forbes put it, after 2 years, CBO budget projections have been "no better than throwing darts." Ouch. https://www.forbes.com/sites/theapothecary/2017/07/18/cbo-budget-projections-after-two-years-no-better-than-throwing-darts/
3/ That said, it doesn't take much expertise to run CBO's min wage model. It's fairly simple math. We know the proposed pct increase in the min wage and roughly the number of workers the hike would affect.
4/ Just plug in a value for employment elasticity (the pct change in employment for every pct change in wages) and the spreadsheet does its thing. The question is: what value do you plug into the elasticity field? And here's where @RoKhanna's talk about expertise comes into play.
5/ Rep. @RoKhanna suggests that maybe CBO should have listened to a respected minimum wage expert like @arindube. That's great advice. https://www.bloomberg.com/news/articles/2021-02-03/minimum-wage-arindrajit-dube-on-economic-impact-of-15-an-hour
6/ After reviewing a ton of reputable min wage studies Dube concludes the elasticity value is closer to -0.04: a .04 pct decrease in employment for every 1 pct rise in wages. Had CBO plugged -0.04 into its spreadsheet it would have forecast about 100K job losses rather than 1.4M.
7/ Instead, CBO chose an elasticity value more than TEN TIMES LARGER than Dube's—one totally outside the current academic consensus. To arrive at this value, CBO ignored a bunch of recent studies finding little or no employment effect while overweighting those finding a lot.
8/ It then compounded its bias by changing methodologies midstream and using the mean elasticity value rather than the median. This gave even more weight to handful of studies that claimed very large job losses.
9/ Which is kind of strange. As Dube points out, the elasticity value CBO has chosen to plug into its minimum wage projections have grown more negative over time, tripling from -0.16 in 2014 to -0.48 in 2021. https://twitter.com/arindube/status/1358904367005376512?s=20
10/ Meanwhile, year after year, the broad consensus among economists has been moving in the opposite direction, with an overwhelming majority concluding from the past few decades of research that the min wage does NOT substantially reduce employment. https://noahpinion.substack.com/p/why-15-minimum-wage-is-pretty-safe
11/ What explains this contrarian swing at CBO (contrary to both academic consensus and empirical data)? I suppose it could be a mere lack of expertise, as @RoKhanna suggests. But to me it looks more like bias.
12/ To be fair, predicting the future is hard. Nobody's good at it. Especially not economists. But start with a bias (conscious or not) toward studies that find a large disemployment effect and CBO is always going to forecast a substantial job loss from raising the min wage.
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