So you want to grow the economy? Just force employers to pay employees more. That way they’ll spend more money, and voila! Economic growth!
That was CNN business reporter Ali Velshi’s economic analysis on the February 2 edition of “American Morning.”
“The increase is tied to $8.3 billion in tax cuts, largely because a lot of small businesses complained,” Velshi noted of the Senate vote the night before to boost the minimum wage. The legislation faces tougher sledding in the House, where Democratic leaders want to remove the tax cuts before sending it to the president.
“Now, folks, agree or disagree about that. It might hurt business, it might not,” he added, suggesting that “when more people earn more money, they have more money to spend.”
Velshi failed to take into account that higher labor costs could lead to layoffs, and that laid-off workers have less inclination to blow what’s left of their cash at the mall.
Indeed, as James Sherk of the conservative Heritage Foundation found, “Most estimates suggest that each 10 percent increase in the minimum wage reduces employment in affected groups of workers by roughly 2 percent.”
Indeed, “raising the minimum wage to $7.25 an hour would cost at least 8 percent of affected workers their jobs. A higher minimum wage helps only those workers who actually wind up earning that wage and further disadvantages lower-income workers, who suffer fewer job opportunities and working hours,” the policy analyst added in a Jan. 8, 2007, issue backgrounder .
The end result is that a wage hike “leaves poor families actually worse off.”
Velshi isn’t alone in the media with his poor command of economics. Indeed, news outlets often characterize the wage hike as an instant pay raise for workers.
“Both House and Senate measures would give several million of America's poorest workers – dishwashers, short-order cooks, laborers, maids – a pay hike by boosting the minimum wage over two years to $7.25 from $5.15,” Thomas Ferraro of Reuters wrote in a February 1 article .
Ferraro’s characterization echoes that of ABC News anchor Charles Gibson, who introduced a January 10 report  on the minimum wage by insisting that “After years of waiting, millions of Americans have reason tonight to plan on a pay raise.”
But government statistics show the number actually earning the federal minimum wage is not “several million.” According to 2005 data from the federal Bureau of Labor Statistics, there were only 479,000 hourly workers “earning exactly $5.15, the prevailing Federal minimum wage.”
What’s more, those low-wage earners aren’t all sticking around at minimum wage for years on end.
In a July 28, 2006, article  entitled “Minimum Wage Workers’ Incomes Rise When the Minimum Wage Does Not,” Sherk pointed to data that showed “the median minimum wage worker earned a 10 percent raise within a year of starting work” and that “over two-thirds of workers” earned more than the minimum after a full year of work.