CBO: Minimum wage hike means lower employment, higher wages for some

Boosting the federal minimum wage as President Barack Obama and congressional Democrats are proposing would increase earnings for more than 16.5 million people by 2016 but also cut employment by roughly 500,000 jobs, Congress' nonpartisan budget analyst said Tuesday.

In a report containing ammunition for both supporters and opponents of the Democratic election-year proposal, the Congressional Budget Office (CBO) said gradually raising the minimum from $7.25 hourly to $10.10 would lift 900,000 people above the federal poverty level by 2016. That is out of 45 million who would otherwise live in poverty without an increase.

But the analysis also noted a down side: About 0.3 percent fewer jobs, higher costs for business owners and higher prices for consumers.

The study was unveiled as the Senate prepares for a March debate on the Democratic plan to ramp up the minimum wage in three steps to $10.10 by 2016. The proposal is backed by Obama and is a keystone of Democrats' campaign-season plans to highlight their effort to make incomes more equitable, but it faces strong Republican opposition and long odds of approval by Congress.

As is common with the CBO’s reports touching on hot-button political debates, Tuesday's release immediately added fuel to the partisan dispute over the proposal, just as last month’s CBO report on The Affordable Care Act’s impact on the economy was used by each party to bicker over the president's health care legislation.

Congressional Republicans immediately seized on the findings.

"This report confirms what we've long known: While helping some, mandating higher wages has real costs, including fewer people working," said Brendan Buck, spokesman for House Speaker John Boehner, R-Ohio. "With unemployment Americans' top concern, our focus should be creating — not destroying — jobs for those who need them most."

But Democrats have said such claims are overblown and outweighed by the benefits to workers and the overall economy as low-wage employees spend more money.

A statement put out by the Obama administration’s economic team parsed the new CBO report, saying that while it confirmed a number of things Democrats have touted, including the bolstering wages of millions of Americans, it also flew in the face of economic research.

“Overall the logic for the finding that raising the minimum wage does not result in large adverse impacts on employment is that paying workers a better wage can improve productivity and thereby reduce unit labor costs,” wrote Jason Furman and Betsey Stevenson, of the president’s Council of Economic Advisers.

Many advocacy organizations supporting the minimum wage hike outside Capitol Hill were similarly inclined, arguing that the central CBO finding of a decrease in jobs for low-wage earners was off-base.

“Today’s Congressional Budget Office report is an outlier that flies in the face of overwhelming empirical evidence,” said Christine Owens, executive director of the National Employment Law Project, a progressive group that has long advocated for a higher minimum wage.

“The effect of raising the minimum wage is one of the most thoroughly studied topics in modern economics, and the vast majority of the more than 1,000 estimates contained in studies dating back to 1972 show no significant adverse effects on employment,” she said.

The CBO study also examined the impact of boosting the minimum wage to just $9 hourly by 2016. That lesser increase would have lesser effects: About 100,000 fewer jobs, higher wages for 7.6 million workers and 300,000 people lifted out of poverty.

The report said the increase to $10.10 would add $31 billion to the earnings of low-wage workers. But it noted that only 19 percent of that increase would go to families earning less than the poverty threshold, while 29 percent would go to families earning more than triple the poverty level. That is because many low-wage earners are not in low-wage families.

The analysts said their estimate of employment losses was approximate. They said the actual impact could range from a very slight employment reduction to a loss of 1 million workers.

The report said that besides boosting wages for people earning less than $10.10 hourly, some people making more than that amount would also see higher earnings as bosses adjust their pay scales upward.

Some people's incomes would grow as their earnings increase, causing them to pay more taxes. But for others, income would fall — reducing their tax burden — and still others would begin collecting unemployment insurance.

A clear majority of Americans support raising the national minimum wage. A recent Gallup poll said that support topped 70 percent.

Al Jazeera and the Associated Press. With additional reporting by Tom Kutsch.