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Originally published February 18, 2014 at 9:54 PM | Page modified February 19, 2014 at 7:37 PM

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Minimum wage forecast: Great outcome at a high cost

A proposed boost in the minimum wage to $10.10 an hour, championed by President Obama, could cut 500,000 jobs in two years, but also lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers, according to a report by the nonpartisan Congressional Budget Office.


McClatchy Washington Bureau

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WASHINGTON — Raising the minimum wage to $10.10 an hour could lift 900,000 Americans out of poverty but also cost a half-million jobs, the nonpartisan Congressional Budget Office said Tuesday in a report that’s sure to feed a simmering debate over how to help move people up the economic ladder.

President Obama wants to raise the minimum wage from the current $7.25 an hour to $10.10 over the course of three years. The minimum wage then would rise automatically each year to meet the rate of inflation, under the president’s proposal. The 43-page report by the Congressional Budget Office (CBO) found that the proposal would increase earnings overall by $31 billion, although only 19 percent would go to families below the poverty line. That’s because many people who work low-income jobs come from families that collectively make far more than the poverty threshold, the CBO said.

The plan would move nearly a million people above the poverty line, the report found, with 16.5 million workers seeing hourly wages rise. The CBO estimated, though, that the plan would reduce total employment by about 500,000 workers once fully implemented in 2016.

The CBO said its projection of a half-million jobs lost was a rough estimate, and that the range might be anywhere from a “slight reduction in employment” all the way to a drop of 1 million workers.

Once the increases and decreases of income for all workers are calculated, the CBO said, overall real income in the economy would rise by a relatively modest $2 billion.

The CBO also examined the impact of a more modest proposal to raise the minimum wage to $9 an hour over the next two years and not tie it to the rate of inflation thereafter.

That would move about 300,000 people above the poverty line while reducing overall employment by about 100,000 jobs, it estimated.

Some 7.6 million people would be affected by that change, the report found, with their earnings rising by $9 billion and about 22 percent of that sum going to families with incomes under the poverty threshold.

A minimum-wage boost can cost jobs because employers can compensate for their higher wage costs by raising prices, prompting consumers to buy fewer goods and services and, in turn, encouraging companies to hire fewer workers, the report said. A minimum-wage increase also encourages some firms to trim the number of low-paid workers.

But the study said the effect can be mixed.

It noted that some firms would get higher productivity from their workers, and some would see savings because increased wages could reduce turnover. Other companies could benefit as increased spending by low-wage workers boosts demand for their products.

Raising the minimum wage would also make hiring low-wage workers more expensive relative to other investments, such as new machinery. Businesses might reduce use of low-wage work and shift spending to other things, like automated systems. But a higher minimum wage would also leave millions of families with more cash to spend, bolstering the economy.

Embraced by both sides

Both sides of the heated minimum-wage debate seized on the report as confirmation of their points of view. The White House touted the report’s findings on the benefits of raising the minimum wage, while dismissing the warnings of job losses as out of step with the consensus views of economists on the issue.

“The report very much does make the case for a policy that benefits more than 16.5 million workers, reduces poverty and raises income,” said Jason Furman, the chairman of the White House Council of Economic Advisers.

Furman said he thinks “zero is a perfectly reasonable estimate” for how much impact the wage increase might have on employment.

National Urban League President Marc Morial said his group’s research showed that raising the minimum wage the past six times had not cost jobs.

Morial, who was among a group of African-American civil-rights leaders who met Tuesday with Obama at the White House, said the minimum wage hadn’t kept pace with inflation and that workers’ ability to pay for necessities “erodes year after year because bread and milk and clothing and housing and baby’s diapers go up while their wages stay stagnant.”

Democrats in Congress said the report gave them ammunition in the fight for a minimum-wage increase, but Republican lawmakers said the report proved that Obama’s “irresponsible” plan must be defeated.

“Today’s CBO report shows that raising the minimum wage could destroy as many as 1 million jobs, a devastating blow to the very people that need help most in this economy,” said Senate Minority Leader Mitch McConnell, R-Ky.

House Speaker John Boehner, R-Ohio, said the report confirmed arguments about the perils of raising the minimum wage.

“With unemployment Americans’ top concern, our focus should be creating, not destroying, jobs for those who need them most,” Boehner spokesman Brendan Buck said.

But House Minority Leader Nancy Pelosi, D-Calif., said: “No matter how the critics spin this report, the CBO made it absolutely clear: Raising the minimum wage would lift almost one million Americans out of poverty, increase the pay of low-income workers by $31 billion, and help build an economy that works for everyone.”

This story includes material from The Associated Press and The New York Times.



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