Blog PostFebruary 19, 2014

Minimum-wage hike would help alleviate poverty, but could kill jobs, CBO reports

Author: Zachary A. Goldfarb

Publication: The Washington Post


President Obama’s proposal to raise the minimum wage to $10.10 an hour would increase earnings for 16.5 million low-wage Americans but cost the nation about 500,000 jobs, congressional budget analysts said Tuesday.

About 15 percent of the nation’s workforce would see wages rise under the proposal, according to the report from the nonpartisan Congressional Budget Office. In addition to the 16.5 million people who earn less than $10.10 an hour, as many as 8 million workers whose earnings hover above that level could also benefit, the report said.

The higher wages would lift about 900,000 people out of poverty, the report said.

But the CBO warned that raising the minimum wage could also cause employers to lay off low-wage workers or hire fewer of them, reducing overall employment by about 500,000 jobs, or about 0.3 percent of the labor force. The CBO acknowledged that its calculation is an estimate and said actual job losses could range from “very slight” to as many as 1 million positions.

“The increase in the minimum wage would have two principal effects on low-wage workers,” the CBO said in the report. “The large majority would have higher wages and family income, but a much smaller group would be jobless and have much lower family income.”

Coming less than nine months before the November midterm elections, the report highlights the vast divide between Republicans and Democrats when it comes to addressing economic problems.

Obama and congressional Democrats have made a higher minimum wage the linchpin of their midterm strategy. Their plan calls for raising the federally mandated salary from $7.25 per hour to $10.10 per hour by 2016, with automatic increases thereafter to account for inflation. Democrats say such a move would deliver broad economic benefits, giving employers a more stable, productive and satisfied workforce.

“Today’s CBO report confirms that raising the minimum wage is in the best interest of our country,” Rep. Chris Van Hollen (D-Md.), the senior Democrat on the House Budget Committee, said in a written statement.

Republicans, however, accuse the White House of pandering to low-income workers without fully understanding the impact of their policies.

“Today’s CBO report shows that raising the minimum wage could destroy as many as one million jobs, a devastating blow to the very people that need help most,” Senate Minority Leader Mitch McConnell (R-Ky.) said in a statement.

Although the CBO report confirmed the arguments of both sides, the report appeared to put the White House on the defensive. Obama and his senior aides have argued that boosting the minimum wage would not cause employers to cut jobs.

In a conference call with reporters, White House chief economist Jason Furman pushed back hard against the CBO’s conclusions, saying its “estimates do not reflect the overall consensus view of economists, who have said the minimum wage would have little or no impact on employment.”

If anything, the CBO report underscored the inherent tradeoffs in many economic prescriptions. While raising the minimum wage would boost the income of most families earning less than six times the federal poverty level — the equivalent of $150,000 a year for a family of four — families earning more than that would see incomes go down, the report said.

Jared Bernstein, a senior fellow at the left-leaning Center on Budget Policy and Priorities, said that the CBO analysis overstates the negative effects of a higher minimum wage. “But even if they’re right,” he said, “we’re still talking about a policy that benefits about 98 percent of affected workers.”

Polls show that raising the minimum wage is broadly popular. A Washington Post-ABC News poll in December found that two-thirds of Americans support a higher minimum wage, siding more with the argument that a hike would help low-income workers than with charges that the policy would lead businesses to job cuts.

The poll found that the public’s preferred minimum wage falls well short of Democratic proposals, with $9.47 emerging as the average suggestion across 897 responses. Self-identified Democrats wanted to set the wage at an average of $10.06 an hour, Republicans at $8.57, and independents at $9.52.

Still, when other surveys asked directly about increasing the wage to $10.10 an hour, at least seven in 10 supported the idea.

That could change, however, with polls showing that anxiety about unemployment is on the rise. Nearly one in four Americans mentioned jobs and unemployment in a February Gallup poll as the most important problem facing the country — a marked increase from the 16 percent who said they were most worried about jobs one month ago.

“Whether it’s Obamacare, a minimum-wage hike or a trillion-dollar stimulus bill charged to the nation’s credit card, the bottom line is the president’s big-
government experiment kills jobs,” said Sen. John Cornyn (R-Tex.).

Scott Clement contributed to this report.