CBO projects $10.10 hourly minimum wage increase will lift 900K Americans out of poverty but cost at least 500K jobs

SOURCE: cbo.gov

Raising the federal minimum wage from $7.25 an hour to $10.10 an hour will lift about a million people out of poverty but will likely cost the U.S. economy between 500,000 to 1 million jobs, according to the non-partisan Congressional Budget Office.

The CBO yesterday released its highly-anticipated report on “The Effects of a Minimum Wage Increase on Employment and Family Income”. However, the report’s mixed findings poured cold water on the Democrats’ push for raising the minimum wage this year.

Read more: Spotlight: Raising the federal minimum wage to $10.10 an hour

A measure by Sen. Tom Harkin (D-Iowa) and Rep. George Miller (D-California) would bump the federal minimum wage to $10.10 an hour by 2016 and adjust the increase for inflation every year thereafter. The minimum wage for tip workers would increase from $2.13 an hour to $4.90 an hour by 2016, after which their wages would grow by 95 cents a year until it reaches 70% of the minimum wage in 2019 and then adjusted for inflation thereafter.

According to the CBO, raising the hourly minimum wage to $10.10 would benefit about 16.5 million Americans and bring about 900,000 people out of poverty.

“Many more low-wage workers would see an increase in their earnings,” the CBO report noted. The increased earnings for low-wage workers would translate to “heightened demand for goods and services” that would benefit some higher-wage workers.

However, after the $10.10 hourly minimum is fully implemented, the CBO projected that between 500,000 (or about 0.3%) to 1 million jobs will likely be lost as a result of higher costs for businesses.

The CBO also analyzed the effects of raising the federal minimum wage to $9.00 an hour by 2016 but without indexing the wage to inflation. It concluded that $9.00 an hour wage increase would benefit 7.6 million people, lift 300,000 Americans out of poverty, but cost the economy between 100,000 to 200,000 jobs.

The CBO’s conclusion that raising the minimum wage would result in job losses drew criticism from the White House, which supports the $10.10 minimum wage increase.

“CBO acknowledges that the employment impact could be essentially zero. But even those estimates do not reflect the overall consensus view of economists who have said that the minimum wage would have little or no impact on employment,” said Jason Furman, Chairman of the White House Council of Economic Advisers.

Furman insisted, “I don’t think the way the headline number is being presented reflects the consensus view of economists on this topic.”

Citing 64 empirical studies on the impact of minimum wage on employment, Furman argued that raising the minimum wage has positive effects on employment.

“Raising the minimum wage increases motivation. It reduces some of the distractions that impact productivity that are related to poverty. It reduces absenteeism. It increases retention for workers on the job and reduces turnover,” Furman explained. “When you take all of that into account, the overall benefits for productivity, plus the other margins on which firms can adjust – for example, reduced profits – meant that there is substantial literature that has found little or no employment impact on the minimum wage.”

Betsey Stevenson, a member of the Council of Economic Advisers, suggested that the CBO did not fully take into account the positive “spillover” effects of a minimum wage increase on employees and employers in its analysis.

“I suspect that they are not fully appreciating how much the literature has moved in terms of understanding the cost savings that you get from reduced turnover when you raise the wages for lower-wage workers, from reduced absenteeism and from increased productivity,” said Stevenson. “There are important spillover effects. So if the lower-wage workers become more productive, are less likely to quit, have lower absenteeism, that not only means that you’re getting more productivity out of them, but to the extent that they influence the productivity of their coworkers, you can overall see greater productivity.”

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