CBO: Wage hike to cost 500K jobs

President Obama’s proposal to raise the minimum wage to $10.10 per hour would cost 500,000 jobs in 2016, according to a report released Tuesday by the nonpartisan Congressional Budget Office.

The report also found hiking the wage from $7.25 per hour would raise income for about 16.5 million workers by $31 billion, potentially pulling nearly 1 million people out of poverty.

The White House and economic groups on the left immediately pushed back at the CBO’s conclusions on jobs even as they hailed the findings on poverty, saying its conclusions on jobs ran counter to other research.

“CBO’s estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists,” Council of Economic Advisers Chairman Jason Furman wrote in a blog post. “The bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent.”

Given its findings on poverty alleviation, Furman told reporters the CBO report was an overall positive for the White House.

“Sometimes you have to have a respectful disagreement among economists,” Furman said in a conference call. “I think a lot of economists who have looked at [the] literature would summarize it differently than CBO has done here.”

Democrats are hoping to make the minimum wage a top issue in the 2014 midterms if the GOP blocks passage of a bill, but the CBO report would bolster Republican arguments for stopping a wage hike.

The office of Speaker John Boehner (R-Ohio) was quick to seize on the CBO finding, arguing it shows Republicans are right that the proposal would hurt the economy.

“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 spokesman Brendan Buck.

Senate GOP conference Chairman John Thune (R-S.D.) noted that the CBO estimated the upper range of job losses from hiking the minimum wage to $10.10 was 1 million jobs.

“Despite the fact that unemployment is Americans’ top concern, Democrats continue their insatiable quest to pass heavy-handed government policies that are costing jobs,” he said.

The minimum wage findings are the second time in weeks the CBO has stirred up controversy on a high-profile issue.

Earlier this month, the CBO found that over the next decade, ObamaCare would result in the equivalent of 2.5 million fewer workers. It concluded many workers would chose to remain at home due to ObamaCare’s expansion of health coverage.

Republicans said the analysis was evidence that the healthcare law will hurt economic growth, while Democrats countered that jobs are not being “lost” because workers will be able to choose other options.

CBO reports have frequently complicated the GOP agenda as well. They have consistently found that ObamaCare overall would reduce budget deficits, for example.

The CBO looked at two options for raising the minimum wage, and did so without prompting from Congress.

The first option is similar to the Senate Democratic approach, and would raise the minimum wage in three steps every year through 2016 until the $10.10 level is reached, on July 1, 2016. This option also includes an increase to the minimum wage for tipped workers and would index the wage increase to inflation.

The report found this hike would result in total employment being lower by 500,000 fewer jobs by 2016.

It found 900,000 fewer people would be living in poverty by 2016 and that families below the poverty line would receive $5 billion more in income.

The figures on poverty are important because Obama is making the minimum wage hike a key part of his message that government must do more to tackle income inequality. Democrats have rallied around the wage hike, which polls well among Democrats, Republicans and independent voters.

Senate Majority Leader Harry Reid (D-Nev.) has said he will bring a minimum wage bill to the floor in the coming weeks.

The CBO also looked at a second option in which the minimum wage rises to $9 per hour over two years. Under this option, the CBO did not index the wage hike to inflation. Obama initially proposed this idea before being pressured by Senate Democrats to seek a higher increase.

This scenario would cost the nation 100,000 jobs in 2016. Low-wage workers still employed would make $9 billion more and real income increases, factoring in job losses, would be $1 billion.

Obama raised the minimum wage for federal contractors last week to $10.10 by executive order, and had discussed it at length in his State of the Union address last month.

“Today, the federal minimum wage is worth about 20 percent less than it was when Ronald Reagan first stood here,” he said.

Raising the wage to $10.10 per hour will help families and “give businesses customers with more money to spend,” he said.
Lobbying on the issue is also intensifying.

“The CBO report illustrates what small businesses have long contended — increasing the minimum wage costs jobs,” said National Federation of Independent Business spokesman Eric Reller. “Coming on the heels of rising health care costs, higher taxes, and increased regulations — this is another example of Washington piling on to small business.”

The liberal group Americans United for Change, meanwhile, blasted the findings, releasing a YouTube video that depicted the CBO’s conclusions as being from outer space.

AFL-CIO union President Richard Trumka dismissed the CBO finding as “noise.”

“Every time momentum builds for lifting wages, conservative ideologues say it will cost jobs,” he said. “Let’s raise the wage and we’ll prove the CBO wrong again.”

—This story was updated at 5:25 p.m. and again at 8:30 p.m.