Wall Street Journal
By: Eric Morath, Damian Paletta and Carol E. Lee
February 18, 2014
President Barack Obama's quest to raise the federal minimum wage to $10.10 an hour would eliminate about 500,000 jobs by 2016 but increase pay for millions of Americans and lift nearly a million out of poverty, a Congressional Budget Office report found.
The estimates released Tuesday by the nonpartisan budget office add fuel to the debate among economists and politicians about the impact of raising the minimum wage from the current $7.25 an hour.
The report nodded to economic arguments made by liberals and conservatives, predicting 16.5 million workers would benefit from an increase in the minimum wage, but also estimating that the job losses could hit a minority of workers.
Republicans pointed to the report's predicted job losses as proof that raising the minimum wage would damage the economy. The White House, which has pitched a higher minimum wage as a top priority this year, disputed that conclusion and said an increase would help workers and spur economic growth.
The CBO said that a gradual increase to $10.10 an hour by July 2016 would eliminate 500,000 jobs, but lift 900,000 Americans out of poverty from the total of 45 million projected to be living in poverty in 2016.
The poverty estimate took into account both families whose incomes would rise enough to lift them out of poverty, and families whose income would fall enough to move them into poverty.
The benefits of an increase would be spread across a broad swath of workers, the CBO said, with 19% of the increased wages going to Americans living below the poverty line. Close to 30% of the higher wages would go to people in families that earned more than three times the poverty level, as many minimum-wage workers are second earners and teenagers living in middle- or upper-income households.
The boost would raise earnings of low-wage workers by $31 billion, the CBO said, but it would also reduce or eliminate the wages of Americans who lost their job because of the increase. On net, the wage increase would raise "overall real income" by $2 billion, the CBO said.
Roughly 3.6 million Americans were paid $7.25 an hour or less in 2012, according to the Labor Department, representing 4.7% of hourly workers. Women are twice as likely as men to earn the minimum wage, according to government data. Roughly half of workers earning at or less than the minimum wage were between the ages of 16 and 24.
Jason Furman, chairman of the White House Council of Economic Advisers, told reporters that the study "very much does make the case for a policy that benefits more than 16.5 million workers."
Some big trade groups criticized Mr. Obama's push. The National Restaurant Association said the CBO report provided "further evidence that an increase in the minimum wage...would significantly limit the entry-level opportunities businesses can provide, hurting employees with limited skills or experience and looking to enter the workforce."
Some business owners say they favor a wage increase. David Bolotsky, chief executive at Uncommon Goods, a Brooklyn, N.Y., online retailer, said boosting the minimum wage would give consumers more money to spend. He backs a proposal advanced by Democrats in Congress that ties future increases to inflation. "That gives me certainty, and that's most important when running a business," he said.
The U.S. government has had a minimum wage since 1938, and it has been raised close to 30 times, but when adjusted for inflation, it peaked in 1968. It was last raised in 2009 as part of a three-phase increase. Close to 20 states require that employers pay a higher minimum wage than the federal level. The majority of people who earn the minimum wage work in jobs like food preparation and other service-related fields.
Mr. Obama, who called on Congress to pass an increase in the minimum wage in his State of the Union address last month, recently signed an executive order raising the wage for workers on new federal contracts. The move was part of an effort to pressure congressional Republicans to pass a broader increase.
A signature part of the president's argument in favor of an increase, which Republicans oppose, has been that it would not adversely affect job growth. White House press secretary Jay Carney argued Tuesday that there was no evidence that raising the minimum wage "has a significant impact on jobs."
The report could blunt the political momentum Democrats had hoped the issue would give them in November's midterm elections--and in the presidential election in 2016, the year the CBO focused on. Democrats have highlighted the issue as a way to draw a contrast with Republicans.
Senate Minority Leader Mitch McConnell (R., Ky.) said the GOP was eager to have the debate, arguing that the report shows a minimum-wage rise "could destroy as many as one million jobs, a devastating blow to the very people that need help most in this economy."
Other Republicans echoed that sentiment. "This report confirms what we've long known: While helping some, mandating higher wages has real costs, including fewer people working. With unemployment Americans' top concern, our focus should be creating--not destroying--jobs for those who need them most," said Brendan Buck, a spokesman for House Speaker John Boehner (R., Ohio), in a statement.
Richard Trumka, president of union federation AFL-CIO, which is holding its winter meeting of labor leaders in Houston this week to strategize for the year, immediately challenged the study's findings and said it echoed false claims by conservatives. "Every time momentum builds for lifting wages, conservative ideologues say it will cost jobs. Every time, they've been dead wrong," Mr. Trumka said in an emailed statement issued during his closed-door meeting with labor leaders.
Senate Democrats have signaled they will hold a vote to raise the minimum wage soon, but Mr. Boehner has said he opposes an increase. Democrats in a number of states, including Maryland and Massachusetts, are planning to push for their own increases this year, and the CBO report could fuel supporters and opponents during local debates.
The CBO report said that the increased cost of labor would encourage employers to upgrade technology or hire fewer, higher-skilled workers. That effect would be partially offset by higher earnings among low-wage workers who retained their jobs.
That prediction could well play out at Bacci Chocolate Design, a small candy maker in Swampscott, Mass., which typically hires high-school students to lend a hand during the firm's busy season. The minimum wage in Massachusetts is $8 an hour.
"I'm not looking to hire people with absolutely no experience at such a high cost," said owner Erin Calvo-Bacci. She would opt instead to hire an older worker who might command pay above the minimum.
The report predicted other positive effects for the economy. Low-wage workers tend to spend a larger fraction of their earnings, so some firms would see increased demand for their goods and services as a result, the CBO said. However, higher wages could result in price increases and smaller profits, muting some of that simulative effect of increased spending.