Congressional Budget Office Says Raising the Minimum Wage Could Cost 1 Million Jobs

Whitehouse.govWhitehouse.govRaising the federal minimum wage to $10.10 as President Obama and Senate Democrats have proposed could cost the economy somewhere in the range of 500,000 jobs, and possibly as many as 1 million, according to a new report from the Congressional Budget Office. An increase to $9 an hour from the current $7.25 would result in a smaller decrease of 100,000, up to 200,000 on the high end. In both cases, the CBO also says there's a possibility of significantly smaller job losses as well.  

Job losses would likely be concentrated amongst lower income workers, while gains from higher wages would be spread across the income spectrum. The budget office estimates that about 29 percent of the income gains that would follow from a minimum wage hike would go to families earning three times the poverty level. That’s because low-wage workers aren’t always members of low-income families—think of middle-class teenagers working summer jobs. 

Some people would benefit from the move, although not as many as President Obama has suggested. The CBO estimates that hiking the minimum wage to $10.10 would raise net incomes by about $2 billion and lift about 900,000 people above the poverty threshold by the middle of 2016. That suggests that a wage-floor hike packs less punch than the White House has said. In a speech earlier this month, Obama said that raising the minimum wage would “lift millions of Americans out of poverty immediately.”

Besides job loss, the budget office predicts that there would be other economic consequences as well. “The increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices,” the CBO report says.

Arguments about the economic effects of raising minimum wage get fairly technical pretty fast, and economists are broadly split on what the results would be. As the CBO notes in a footnote, a recent survey of economists found that 40 percent agreed that a hike to $9 and hour would make it harder for low-skilled workers to find employment, but 38 percent said it would not, and 22 percent were uncertain.

It’s complex and highly politicized, and the CBO tries hard to avoid politicization to the extent that it's possible. So this report is probably best taken as a wonky but readable guide to the economic research on the topic. And it’s probably not worth investing too much in the specific point projections about jobs lost and incomes raised. Instead, it’s best to think of the report as highlighting the variety of economic costs and trade-offs that would come with a hike in the minimum wage, including job loss, and a reminder that the administration has an incentive to downplay potential negatives and paint its policy proposals in the most positive possible light. 

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  • Contrarian P||

    It's easy to see why economists are so split on this issue. Because the effects of increasing employers' costs of doing business, while not raising their business income, are not entirely predictable.

  • Sevo||

    I'm sure someone can construct a condition where it won't cost many jobs, but it's pretty much a given that raising the price of a good will lower demand.

  • IT||

    No, no, no. Set the minimum wage to ... $1million per American. Think about the spending potential. What could go wrong?

    What!? ... it doesn't work that way?

  • Francisco d Anconia||

    And the people who were previously making $10.10 an hour will cry, WE are not minimum wage workers, we demand a raise...hell...raises for everyone, driving up the price of goods and services, requiring a readjustment to the poverty line, dropping 900k back below it. So in the end, you get 1M people without jobs, no change in status and the rest of the country paying more for goods and services...

    FUCKING GREAT IDEA!

  • ||

    Yeah. This isn't even remotely controversial among economists either, despite the best efforts of the administration to make it seem as though it were. The quoted portion of the report tells the whole story:

    “The increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices”

    No shit, huh?

  • Sevo||

    Note also the claimed intent is to reduce the inequality of income.
    Note how raising the income of some and putting others out of works accomplishes the goal!
    Not to worry; the next step will be to require an increase in jobless benes so those out of work get a similar income to those still working.

  • Lord at War||

    FdA-

    THIS.

    You've been working for min wage for 6-9 months, show up every day, do your job well, demonstrate you can do more.

    You get a raise from $8.50 to $9.25, and, (because the manager knows he doesn't have to babysit you) then get another raise to $9.75 six months later.

    Now, the min wage is $10.10- is your employer going to bump you to $11.35 to reflect the $1.25 rise you've earned from the bottom?

    What do these "ripples" up the wage scale do to prices?

  • Reverend Draco||

    I wonder that, too.
    I got out of the minimum wage rat race by learning marketable and more valuable skills - the MW for my job is about $5/hr more than the enforced-at-gunpoint MW.
    I also wonder if I'll get a similar raise, to keep my base wage at $5/hr more than MW, of if I'm just boned.

  • VicRattlehead||

    unless your employer is raking in the cash youre pretty much boned, having to pay more to the MW monkeys, and children will mean less opportunity for you to advance. its not you, its just the math< your employer has a choice, drop quality of service, quality of paychecks, or personal standard of living, guess which one you would pick and i bet he picked the same

  • steve walsh||

    That's good, unleashing more miserable souls from their tedious and oppressive labor filled jobs, right?

  • Coyoteblog||

    I am opposed to the minimum wage increase but you need to get your reporting correct to maintain credibility on it. As I read it the job loss range for the higher increase is not 500K to a million it is slightly above zero to a million, with 500K as the most likely value.

  • steve walsh||

    Zero to one million? Why, a estimate range as broad as that is enough to make one think they haven't got a clue what will happen if the minimum wage increases.

  • Sevo||

    "Zero to one million? Why, a estimate range as broad as that is enough to make one think they haven't got a clue what will happen if the minimum wage increases."

    You'll notice no one is predicting additional jobs as a result.

  • John Thacker||

    That's correct. The 500K is what they give as the midpoint and most likely number. I think that Peter's comments could be read that way, but it is a little unclear

    There's as much uncertainty here as in, say, the stimulus numbers that Peter discussed earlier.

  • Matrix||

    Well, those 1 million jobs weren't good jobs anyway. They weren't good enough, which is why the government has to take them away. All you have to do is just get a better job, folks!

  • Doctor Whom||

    If you like your job, you can keep your job. Asterisk.

  • wagnert in atlanta||

    ...and that's a promise!

  • Brian||

    I wonder if revelations like this give social democrats pause. On the one hand, they act as though the minimum wage produces nothing but good effects, and that's what all the really smart economics agree on.

    They also love central planning.

    So, what do they say when the Congressional Budget Office, whose projections are the basis for public policy, disagree with their preferred economic read on a policy? Do they begin to doubt the awesomeness of central planning based on a CBO that can be so wrong? Or, do they reconsider their economic theories?

    It always seems they take the third option: ignore the contradiction, and proceed ahead. Both the CBO and our economics are spot on, even when they disagree.

    Because that's fact based policy making.

  • Sevo||

    ..."Do they begin to doubt the awesomeness of central planning based on a CBO that can be so wrong? Or, do they reconsider their economic theories?"...

    I'd say neither. Note what happened when O-care was shown to chase people onto the dole: They simply changed the definition of "success" and claimed victory.
    IOWs, they lied.

  • ||

    Is there something wrong with "i.e."?

    Let the kids have their IOW.

    /not picking on you, Sevo. It's just somethiing that's been bugging me.

  • Rich||

    Raising the federal minimum wage to $10.10 ... could cost the economy ... as many as 1 million

    Meh. The job loss will be revised upward -- "unexpectedly" -- soon enough.

  • creech||

    All job losses will be at the margin and time-sensitive. Raising the minimum wage by one cent won't cost one job. Ten cents will cost a few. $1 even more, and so on. Many businesses won't be able to operate with fewer employees, but only in the long run. Technology can't be brought in on day one (financing constraints or machines
    aren't available yet, etc.) People who deny the iron laws of economics are deluding themselves and the uninformed public.

  • LarryA||

    "They're just laws. We can amend them."

  • VicRattlehead||

    But due to the rapidly accelerating advances in materials and technology, and artificially low interest rates on borrowing capital, tech is quickly becoming cheaper than humans. In fact physicist Michio Kakhu predicts that the next 10 years will lead to a 60% unemployment rate if MW laws continue to increase at the slow rate they have been.
    we are on the verge of a massive problem that no one is talking about, get your technical skills training now because in a few short years the world is going to look as different as today looks compared to 1980. of course this is all assuming that our society keeps a relatively free market. communism may just be the thing that saves mankind from the technological singularity and advancing to space travel

  • SugarFree||

    CBO is all bullshit. Unless they agree with Obama.

  • Sudden||

    Tony impersonation?

  • RishJoMo||

    Sounds like some pretty serious business dude. LIke wow!

    www.Anon-VPN.com

  • Sevo||

    This is sort of surprising.
    The CBO simply does the sums on the figures supplied by the (VERY interested) parties.
    The fact that the figures couldn't be twisted enough to yield a positive outcome suggests the reality is FAR worse than anyone is admitting.

  • Francisco d Anconia||

    Excellent point.

    You know you've told a whopper when you can't even get CBO numbers to support your position.

  • ||

    Of course it will cost jobs. And of course the total income of poor people will fall. This is pretty basic economics. Demand curves slope DOWN.

    But... it makes liberals feel good about themselves to pretend to 'help' poor people, and the only ones who get it in the neck are assorted gross poor people and they don't live in limousine liberal neighborhoods.

    Black teen male unemployment was 43% last time I looked. Unemployment as a function of income is an interesting graph, at least to economists. We have a flat line for almost the entire range, and then a large spike at the bottom. It's like minimum wage laws actually do cause unemployment, just like Right Wing/Libertarian economists keep saying...

    That it will necessarily reduce income is pretty straightforward. Output is a function of labor and capital, and some labor will be priced out of the market. Total output MUST therefore fall.

  • JeremyR||

    But at the same time, what is the point of having a job if you don't make enough money to actually live?

    The choice seems to be being on government assistance and not working, or being on government assistance and working for a very low salary.

    Something has to change. Either way, people are getting poorer and the government is getting deeper in debt.

  • Sevo||

    JeremyR|2.18.14 @ 7:42PM|#
    "But at the same time, what is the point of having a job if you don't make enough money to actually live?"

    Uh, cite missing.

  • ||

    So this report is probably best taken as a wonky but readable guide to the economic research on the topic.

    A report that would have you believe a superior allocation of resources can be achieved with a higher wage floor secured by force isn't wonky it's crap. Meanwhile members of the Obama administration insist that unemployment benefits need to be paid in perpetuity and it should be criminal to consider how long someone has been out of work when evaluating their fitness for a position. Three great recipes for destroying a labor market.

  • Ama-Gi Anarchist||

    The CBO estimates that hiking the minimum wage to $10.10 would raise net incomes by about $2 billion and lift about 900,000 people above the poverty threshold by the middle of 2016.

    Except that the poverty level would simply go up too (maybe by a slower rate since this is only Federal workers). In point of fact, the actual poverty level should be about 20k a year thanks to the fuck-me-go-round called QE-Infinity and other inflationary practices like the 130k acres of arable farm land that the US Army Corps of Engineers destroyed in 2011.

  • mitchellmitchell40||

    my neighbor's sister-in-law makes $76 /hr on the internet . She has been laid off for 8 months but last month her pay check was $17299 just working on the internet for a few hours. more information.....
    http://www.Jobs84.com

  • Sevo||

    mitchellmitchell40|2.18.14 @ 6:13PM|#
    "my neighbor's sister-in-law makes $76 /hr on the internet"

    Not if this passes, she won't.

  • LibertarianX||

    Is there a way to flag these spammers?

  • David Wall||

    "There aught to be a law, right?"

    Like you, I was irritated at first. Then I thought: markets in action. How appropriate on this site.

  • VicRattlehead||

    no but they made this magical wheel on your mouse, and you were born with the ability to make decisions. whine ass

  • PapayaSF||

    Since this increase will disproportionately take jobs away from groups like black teens, how about a disparate impact lawsuit? It's a federal policy that disproportionately harms blacks, after all. And there's plenty of evidence that that is precisely what the Progressive proponents of the minimum wage wanted: to remove jobs from white women (so they would stay home and have kids), and from blacks and the handicapped (so that they couldn't afford to have children at all).

  • LynchPin1477||

    lift about 900,000 people above the poverty threshold by the middle of 2016

    I wonder if that takes into account the possibility of a higher poverty threshold if an increase in minimum wage increases prices on basic goods.

  • JeremyR||

    Meanwhile, the head of a game company who made two games attacking Ayn Rand and Objectivism (Bioshock) , decided he's tired of making AAA games and canned his whole studio, leaving 100s of people out of work.

  • LibertarianX||

    What do we have a CBO for, what is their purpose? To tell us that when you raise the price of something people buy less of it, including labor? You can teach this lesson to third graders with candy and a couple of quarters.

    And even with all of their study, the CBO can only work with the "facts" given to them. They are never right. As a worthless organization of the government, they should be fired.

  • IT||

    Isn't this just a payoff to unions? Someone told me that union contracts are tired to the minimum wage. If the MW goes up, then union pay goes up. I've never checked this out because it sounds completely believable.

  • Sevo||

    Funny you should mention that:

    "Labor Union Self Interest: Facts Behind Organized
    Labor’s Push to Raise the Federal Minimum Wage
    [...]
    An analysis of union collective bargaining agreements available from the Department of Labor’s Office of Labor-Management Standards indicates that many service, retail and hospitality industry labor unions—such as UNITE-HERE or the Service Employees International Union (SEIU)—peg baseline wages to the federal minimum wage. Thus, in many cases, raising the federal minimum wage will either trigger wage renegotiations or automatic wage hikes for certain unionized employees."
    http://www.unionfacts.com/arti.....report.pdf

  • concerned cynic||

    The real harm of the minimum wage is not in terms of extant jobs destroyed, but in the jobs that fail to come into being. A rise in the minimum wage will not help at all the large number of functionally illiterate underclass men who have been unemployed since the start of the Great Recession.

    The minimum wage interacts with the refundable tax credits and food stamp eligibility in ways nobody seems to think about.

    I have calculated that a rise in the minimum wage moves over the poverty line only families with a small range of sizes. Smaller families are already over the poverty line; a minimum wage rise makes them better off, perhaps, but does not "get them out of poverty". Larger families remain under the line even after the raise.

  • Laird||

    Anyone who thinks that raising the minimum wage has anything to do with improving the financial condition of those at the bottom of the economic ladder is hopelessly naïve.

  • cheap kits||

    It always seems they take the third option: ignore the contradiction, and proceed ahead. Both the CBO and our economics are spot on, even when they disagree. agreen

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