Minimum Wage

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

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Whitehouse.gov

Raising 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.