It’s Byrd Bath-time for the Minimum Wage

It’s an off-week for political betting, so I thought I’d take the time to do some research on some other medium-term markets that have been on the back burner given more immediate concerns (how about those impeachment markets, folks?).  And to make it fun and to back up the advice I gave about putting the work in when trading, I thought I’d just share everything here to provide a real example of how much/little effort I put into this stuff.  Presenting: what I learned about the minimum wage markets.

The markets

Will the federal minimum wage be $9.50 per hour or higher by September 1? (34c YES)

Will Biden policy to raise minimum wage to $15 per hour in 2021 succeed? (5c YES)

Now, right away we can rule out the latter market.  As many noted at the time of its launch… the Biden policy was never to raise the minimum wage all the way to $15 in one shot (though we forgive you if you thought so).  Joni Ernst tried to score some Gotcha Points during the vote-a-rama on the budget resolution by asking for a roll-call vote that this exact thing not happen… and Bernie stood up and agreed with her, pointing out that his proposal was for a gradual phase-in, and the amendment passed by voice vote.  So!  That one resolves NO, but tying up your money there for 5% next January 1 is probably not worth it.

The first market, however, is very much live (as the price indicates).

The rules

Always read the rules first, kids:

“This market shall resolve to Yes in the event that the federal minimum wage in effect for covered non-exempt employees is $9.50 or more per hour at any point between the launch of this market and the End Date listed below, according to the U.S. Department of Labor.”

Seems fairly straightforward!  I note the keyword “non-exempt” but that seems like the right category for what people talk about when they talk about the minimum wage.  So!  Let’s dive in.

Questions

The first thing I do when presented with a market like this (where I basically have no clue what’s going on) is to generate a list of questions I feel I need the answers to in order to get a handle on things.  For this topic, these go something like this:

  1. What’s up with $9.50?  Does the legislation being considered raise the minimum wage to $9.50 first?
  2. What’s up with September 1?  Does the legislation being considered raise the minimum wage by September 1?
  3. What will it take to pass the minimum wage hike in the COVID relief bill?  Is it in there to begin with?
  4. Okay, what is the deal with the Byrd rule?  How does that work?
  5. What are the political considerations?  Does it have the votes?
  6. If not the COVID relief bill, what?

I sort of have half-answers to a lot of these – I know that the minimum wage hike is part of Biden’s COVID relief bill; that there are strong parliamentary concerns that it won’t pass the Byrd rule; that Manchin and Sinema are opposed to violating the Byrd rule (at the least).  All of that seems to justify the market’s skeptical 35c price, and further suggests that this is a market that either goes to 99c or 10c some time in the next couple weeks (perhaps this week!) as we learn whether or not Dems are going to keep fighting to include in the COVID bill or, if they do, whether or not it gets stripped out by the Byrd rule.

Alright, with these vague contours in mind, let’s dive in.

The bill

The legislative vehicle at hand is the COVID relief bill.  Now, we don’t know what the final legislation will look like.  The House is likely to move on its bill next week.  Will the Senate make its own bill?  Reporting suggests this is very unlikely (they’d have to repeat a lengthy mark-up process) and that if anything the Senate will simply hotline the House bill to the floor, whereupon it may be amended or whatever before final passage and getting kicked back to the House.  (Current schedule: House passage by Feb 26-28, on Senate floor starting somewhere in March 1-3, back to House week of March 8 to pass the final version.)

Okay!  So what’s in the House bill?  Well, for that I’ve gone ahead and done the necessary googling, and here is the markup as passed by the House Education and Labor Committee (pdf): https://edlabor.house.gov/imo/media/doc/ANS_CommitteePrint(ReconciliationDirectives).pdf

And here is the relevant passage:

So, yes, it turns out that a $9.50 minimum wage is very much on the cards this year.  What about by September 1?  Well, let’s look up the “effective date” in section 2101(e):

And so yes, we can see that if this becomes law in March, the minimum wage would rise to $9.50 on June 1st (June is the third month that begins after the date of enactment).  (It’s worth keeping this third-month-start-after-enactment lag in mind in the event the minimum wage doesn’t make it through the COVID package: if Congress returns to the topic shortly thereafter and uses similar language, such legislation would need to be enacted prior to July 1 in order for the market to resolve YES).

This dispatches questions 1-3 above!  It’s in the bill (thus far).  The bill’s passage would satisfy the YES requirements.  There are no obvious rules cucks.  So now let’s move on to meat of the issue: the Byrd rule.

What is the deal with this Byrd Bath nonsense?

Vaguely, the Byrd rule is a piece of federal law (it’s actually in the law, apparently) that says that any senator can raise a point of order to strip extraneous provisions from any reconciliation bill.  If they do so, the Parliamentarian advises the chair (the presiding officer) on what to do, and the chair then issues a ruling.  If they rule the matter is extraneous, the measure is stripped – though senators can also move to waive the Byrd rule for a given measure (which requires 60 votes).  From our gambling perspective, we know that everyone is saying that the minimum wage will get axed in the “Byrd Bath” but can we know that for sure?  Does the chair have to listen to the parliamentarian?  How does this stuff work exactly?

I’m not sure I’ve been able to completely answer these questions, but I have at least read a comfy CRS report on the topic and so here’s the tl;dr: the minimum wage provisions are at least facially at risk of getting slain by the Byrd rule and though the Senate has the power to ignore it, they likely won’t.

First, if you’d like to read the rule, it is here: https://www.law.cornell.edu/uscode/text/2/644

Next, here’s what criteria are used to define something as extraneous to a budget reconciliation bill:

So yeah, a minimum wage raise doesn’t directly produce a change in outlays or revenues, though it likely has foreseeable indirect impacts (which are definitely not just “incidental”, though I don’t know how these terms are defined in practice). But more on that later –  now here’s what happens if a reconciliation bill makes it to the floor and a senator wishes to challenge a provision therein under the Byrd rule:

Now, there are some other considerations in mind: first the Budget Committee Chairman (and Ranking Member) are supposed to submit lists of provisions in the bill that might violate the Byrd rule.  Second, a lot of Byrd issues are dealt with behind closed doors.  In order to skip a lengthy set of points of order and floor business, the majority leader and minority leader get together with the parliamentarian and argue over which provisions should be kept and which shouldn’t, and the parliamentarian (a woman named Elizabeth Macdonough) issues her ruling. This private proceeding is the Byrd Bath.

And why the hell does Elizabeth Macdonough get to have so much power?  Well because she is allowed to have the power.  The chair (the presiding officer) is the one who rules on points of order, but they do so at the parliamentarian’s advice and recommendation.  And overruling the parliamentarian is just… not done?  Because “muh norms”, I guess?  But, in principle, yes the chair can ignore the parliamentarian and any motion to appeal the ruling would require 60 votes if the CRS report above is correct.  However!  A senator could also then presumably offer a motion to commit the legislation back to committee with instructions to strike the provisions, and such a motion would require a simple majority (I believe) and therefore Manchin and Sinema could simply vote to commit and effectively force the language out that way if they so choose.  And about Manchin and Sinema…

The political considerations

First, raising the minimum wage is a clear political winner in the eyes of Democrats.  Hell, even Tom Cotton (whose home state has an $11/hr minimum wage) is out with a proposal to raise the minimum wage.  Senator Manchin has made some noise suggesting $15 might be too high for West Virginia but he’s basically backed down from all that and has now retreated to purely procedural grounds, drawing a “Hell or high water” hard line at protecting the Byrd Rule (i.e. he won’t go along with any schemes like the one I proposed wherein the chair ignores the parliamentarian).

So Democrats want the minimum wage raised.  Yet they also almost certainly lack the spine needed to upend decades of precedent and ignore in the parliamentarian.  But if something gets past the parliamentarian, are Manchin/Sinema really going to vote the whole thing down?  Nah, come on.

The actual fight

Is there a path to passing the minimum wage increase via reconciliation that squeaks by the parliamentarian?  I am somewhat skeptical (mainly because the Hill reporters seem to be), but Bernie has been notably bullish on it and Schumer has also been as optimistic as possible.  This is where the real fight is, and what will most likely determine where this market goes in the short term.

It seems the argument Bernie et al. will make to the parliamentarian is that of course raising the minimum wage will end up influencing the budget because it will have knock-on effects on both incomes and outlays to and by the government.  Bernie sought out and got a letter from the CBO endorsing this case (The letter itself).  Specifically, Bernie is going to say that if the parliamentarian let through measures like setting the ACA non-insurance penalty to $0 or the ANWR drilling provisions within the 2017 TCJA (passed via reconciliation), she also ought to let through the minimum wage.  And he’s gotten the CBO to agree:

Will the parliamentarian agree with the CBO?  Well I don’t know – but that’s what the entire market comes down to!

The market

Let’s talk about the market itself.  Here’s the price history:

It opened up fairly optimistic (around 40c) but then collapsed to sub-10c on news that it likely wouldn’t survive reconciliation (Biden himself was saying as much at that time).  But since then it’s made a nice charge back up, holding steady now in the 25-35 range.

Is 35c about right?  To me, 35c says “we’re getting a little bit optimistic but overall it probably won’t happen”.  And I think that’s kind of a fair assessment of the current collective opinion on whether or not the minimum wage gets through.  As to whether it’s an accurate price – well that depends on whether you think Bernie’s argument to the parliamentarian carries water.  At least from my point of view, with research done thus far… I don’t feel comfortable entering either side.

Price-moving events

At this point in the research phase, I feel like I have a reasonable enough handle on the underlying market question to pencil in some predictions about how various events might move the price. Here’s a list of things that *could* happen, along with what I think the market reaction would be:

  • Continued bearish posts from Hill reporters: will contribute to gradual erosion of price, maybe sinking down to 20c.
  • A report suggesting that Schumer and Dems are abandoning the minimum wage push for now: complete market death to 5c, with some rebound to 15c possible.
  • A report that Schumer and Sanders have “growing optimism” or that senate Dem aides are quietly growing bullish after meeting with the parliamentarian: YES rises to 50c, slides back to 40-45c.
  • A report that the parliamentarian has let the minimum wage hike through: YES to 83c, sliding back to 70c with panics to 60c possible on Manchin/Sinema concerns or confusions on parliamentary cuckery.
  • A report that Schumer or Senate Dem leadership is unironically considering ignoring the parliamentarian (v. unlikely): YES to 45c minimum (depends on strength of rumor) with backsliding highly likely as no one thinks they’d have the actual stones to do it.
  • The House Budget Committee alters the bill in mark-up in such a way to reduce the initial wage jump or its effective date: instant death to 5c with some rebound to 15c possible.

Finally I’ll note here that one question remains unresolved from my list above… what happens if it doesn’t make it in the COVID bill? Is the market dead? Well, nothing is dead until it’s dead. I expect this one to not fall much below 10c until like July or so or whenever it becomes clear it just ain’t happening.

In conclusion…

It could happen but it kinda seems like it won’t, idk! What, did you think I would know the answer? I don’t do predictions. But hopefully showing the process is a little bit helpful! Good luck out there and if you want a tweetdeck search column string, maybe try ("wage") AND ("parliamentarian" OR "Byrd" OR "Schumer" OR "Sanders" OR "Manchin" OR "Sinema").

Happy trading!

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