Minimum Wage Hike Could Cost 500K Jobs, CBO Reports

Feb 18, 2014 5:38pm

While Congressional Democrats and President Obama have made increasing the federal minimum wage a top priority this year, a new report by the non-partisan Congressional Budget Office finds a wage hike could result in a net job loss of about half a million workers even though it would increase wages for 16.5 million others.

According to CBO, increasing the minimum wage would have two chief effects on low-wage workers: First, about 16.5 million workers would receive higher pay that would increase their family’s income, and about 900,000 of those families could earn a big enough increase to eclipse the federal poverty threshold.

But CBO also forecasts some negative consequences from the proposed increase. Some jobs for low-wage workers would probably be eliminated, the report finds, and the income of most workers who lose jobs would fall substantially while the share of low-wage workers who were employed would also probably decrease.

CBO projects that if the president’s proposal to increase the minimum wage to $10.10 was fully implemented by the second half of 2016, it would reduce total employment by about 500,000 workers, or 0.3 percent.

“As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers,” the report stated.

For Republicans already suspicious of increasing the minimum wage, the report emboldens GOP opposition in the House of Representatives.

“This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working,” Brendan Buck, Boehner spokesman, wrote in an email. “With unemployment Americans’ top concern, our focus should be creating – not destroying – jobs for those who need them most.”

Still, Democrats found some silver linings in the report while also doubting the credibility of some of the CBO’s findings.

“[CBO's] conclusions contradict the consensus among hundreds of America’s top economists,” House Minority Leader Nancy Pelosi, D-Calif., contended. “What’s more, in past years, the CBO itself has acknowledged the uncertainty of its own predictions and ignored new perspectives in the wide array of analysis on the minimum wage.”

The White House’s top economist expressed his “respectful disagreement” with the report’s finding that increasing the federal minimum wage could net 500,000 lost jobs. Chair of the Council of Economic Advisers Jason Furman told reporters the CBO report does not “reflect the overall consensus view of economists, who have said that the minimum wage would have little or no impact on employment.”

“Our view is that… zero is a perfectly reasonable estimate of the impact of the minimum wage on employment,” Furman said

Although federal spending and taxes would also be indirectly affected by the increases in real income for some people and the reduction in real income for others, CBO says it is unclear whether the effect as a whole would be a small increase or a small decrease in budget deficits over the next 10 years.

“As a group, workers with increased earnings would pay more in taxes and receive less in federal benefits of certain types than they would have otherwise. However, people who became jobless because of the minimum-wage increase, business owners, and consumers facing higher prices would see a reduction in real income and would collectively pay less in taxes and receive more in federal benefits than they would have otherwise,” the report reads. “CBO concludes that the net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter.”

CBO considered two proposals to change the minimum wage in its report. A “$10.10 option” would increase the federal minimum wage from its current rate of $7.25 per hour to $10.10 per hour in three steps—in 2014, 2015, and 2016 and then would be indexed to inflation. A “$9.00 option” would raise the federal minimum wage from $7.25 per hour to $9.00 per hour in two steps—in 2015 and 2016 and would not be subsequently adjusted for inflation.

Nevertheless, Pelosi was adamant that the pros outweigh the cons and urged Republicans to act.

“It’s time to give America a raise,” she stated.

ABC News’ Mary Bruce contributed to this report

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