Fact Check: Braley makes claims about 'income inequality,' raising minimum wage

Published: February 8 2014 | 7:00 am - Updated: 29 March 2014 | 3:21 am in Fact Check,

Introduction

Fact Checker is examining claims about "income inequality" and the economic effects of increasing the minimum wage made by Democrat Bruce Braley, a U.S. Representative who is running for the U.S. Senate seat being vacated by Tom Harkin.

Source of claim

Bruce Braley, in a mailing to supporters.

Analysis

Braley is among lawmakers pushing to raise the minimum wage from $7.25 to $10.10, including co-sponsoring the Fair Minimum Wage Act of 2013.

In a letter to constituents, Braley made a case for the law change through fairness claims about "income inequality," which he calls one of the biggest issues facing our country, and economic claims about the positive effect of an increased minimum wage.

"The wage gap between the wealthiest 1 percent and the rest of America is larger than it's been since the Great Depression," Braley writes in the letter. "And it's only getting worse."

A 2013 research paper written by economists from University of California, Berkeley, Oxford University in London and the Paris School of Economics supports this claim.

"The top share is today back in the same range as in the 1920s," the paper states. "Interestingly the Great Recession of 2008–2009 does not seem to have reversed the upward trend. There was a fall in the top 1 percent share in 2008–2009 but a rebound in 2010."

The paper found the top 1 percent wealthiest Americans hold about 20 percent of the income, based on annual income reported on tax returns.

The paper shows the gap has been steadily growing for three decades.

Later in Braley's letter, he claimed "around 3.6 million Americans are making minimum wage or less."

A Bureau of Labor Statistics report released in February 2013 supports the claim, at least when considering the federal minimum wage. The report states that "among hourly workers, 1.6 million earned exactly the prevailing federal minimum wage of $7.25 per hour" and "about 2.0 million had wages below the federal minimum."

Braley continues his pitch by making an argument that increasing the minimum wage will help the economy:

"Raising the minimum wage is a practical, common-sense approach to boosting economic productivity all across the country. A report from the Economic Policy Institute shows that raising the federal minimum wage would create approximately 140,000 new jobs.

"And it would mean bigger paychecks for approximately 340,000 Iowa workers."

Braley is accurate in citing the Economic Policy Institute figures and he does so in context.

But we could find no other sources that reach those same figures, nor directly dispute them. It comes down to whether you believe the economic theory that increasing the minimum wage will create a modest stimulus for the economy or if you think that it will cause employers compensate by cutting hours or eliminating positions.

The Economic Policy Institute is considered left-leaning, but we set that aside because there's substantial research — from think tanks as well as peer reviewed scholarly papers — on both sides of the argument.

In a 1994 research paper published in "The American Economic Review," Princeton University economists David Card and Alan B. Krueger found no negative effect and possibly a slight benefit to the respective local economies when comparing fast-food restaurants in New Jersey, which had just increased its minimum wage, to fast-food restaurants in eastern Pennsylvania, which had not increased the minimum wage.

That paper was both widely praised and panned. The Wall Street Journal compiled a sampling of research in its Jan. 30 edition that stakes out opposing positions.

Conclusion

Within the text of his letter, Braley clearly states the source of his figures claiming a positive economic impact from raising the minimum wage. While credible sources disagree this could happen, plenty of credible sources also have research say it could. Braley's other claims about income inequality in this country, as well as about the number of minimum wage workers are supported.

We deem the claims in the letter mostly true.

Sources

Analysis shows growing gap between rich and the rest: http://elsa.berkeley.edu/~saez/alvaredo-atkinson-piketty-saezJEP13top1percent.pdf

The Bureau of Labor Statistics report estimates the number of people being paid at or below the federal minimum wage: http://www.bls.gov/cps/minwage2012.pdf

Research on the economic impact of raising the minimum wage by the Economic Policy Institute: http://s2.epi.org/files/2013/IB354-Minimum-wage.pdf

Economists' opposing views of impact of raising the minimum wage: http://blogs.wsj.com/economics/2014/01/30/should-the-minimum-wage-be-raised-economists-weigh-in/

1994 paper by Princeton University economists David Card and Alan B. Krueger: http://davidcard.berkeley.edu/papers/njmin-aer.pdf


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