Mixed results in study of increasing minimum wage


A popular Democratic proposal to raise the minimum wage to $10.10 an hour, championed by President Barack Obama, could reduce total employment by 500,000 workers by the second half of 2016. But it would also lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week.

That is the mixed conclusion of an assessment of how raising the minimum wage would affect incomes, employment and the federal budget. The report was released Tuesday by the nonpartisan Congressional Budget Office, whose views often have a powerful influence on the fate of legislation.

The nuanced analysis provided fuel for both supporters and critics of raising the federal minimum wage, a policy heavily favored by Democrats but viewed skeptically by Republicans in Congress.

Republicans contended the policy would be a job-killer, while Democrats asserted it would help alleviate poverty. Economists said both might be right.

And the White House, in an unusual twist, openly disputed the budget office’s math.

Jason Furman, the chairman of the White House’s Council of Economic Advisers, said that the office’s estimate of the potential lost jobs might be too high. In a call with reporters, Furman said that finding no jobs effect at all would be a “perfectly reasonable estimate.”

The analysis does not reflect “the consensus view of economists,” he said. “Sometimes, you have to have respectful disagreement.”

But the report was embraced by leading Republicans, who have opposed the legislation despite its widespread popularity in public opinion polls.

“Raising the minimum wage could destroy as many as 1 million jobs, a devastating blow to the very people that need help most in this economy,” said Sen. Mitch McConnell of Kentucky, the minority leader. “If and when Democrats try to push this irresponsible proposal, they should be prepared to explain why up to a million Americans should be kept from having a job.”

Democratic lawmakers and liberal groups joined the White House in challenging that view.

“I haven’t seen Republicans this excited about something that bucked the trend in their favor since the last poll showing Mitt Romney was about to be elected president,” said Brad Woodhouse, the president of Americans United for Change, a liberal advocacy group. “But sorry to rain on their parade — one report does not a trend make.”

The budget office found that lifting the federal minimum wage, currently $7.25 an hour, would have a complicated effect on the labor market, acting as a boon and a burden for businesses and workers.

Overall, the budget office estimated that lifting the minimum wage to $10.10 and indexing it to inflation would reduce total employment by about 0.3 percent, or 500,000 workers. But it cautioned that the estimate was imprecise, with the job losses likely to fall in a range from practically nothing to 1 million.

The proposal would result in winners and losers among the low-wage workers it would target, the report found. Some businesses, squeezed between increased costs and the inability to raise prices or sell more goods, would hire fewer low-wage workers because of a higher minimum wage, the report said.

But increasing the minimum wage would bolster the earnings of about 16.5 million workers: providing $5 billion a year more for families living in poverty, $12 billion a year more for families earning from one to three times the poverty threshold.

Several top labor economists said Tuesday that the budget office was overstating the proposal’s effect on the job market. Lawrence Katz of Harvard, for instance, said that the budget office had used “a lot of off-the-shelf estimates” of the jobs effect, and that if it had emphasized findings from higher-quality studies, it would have found a smaller or negligible impact on total employment.

More conservative economists said that the profession had long viewed raising the minimum wage, like any increase in price, as having an effect on the demand for jobs.

“The Congressional Budget Office confirms the president proposes an unprecedented increase in the minimum wage that will cost hundreds of thousands of jobs,” said James Sherk, who analyzes the labor markets for the Heritage Foundation, a right-of-center research group.

Liberal economists said that quibbling over the jobs numbers neglected a central finding in the report: that many workers would benefit from an increase in income.

“The CBO chose a higher number than I think reflects the best work, but they’re not way off the reservation,” said Jared Bernstein, a former Obama administration economist now at the Center on Budget and Policy Priorities. “Even if they’re right, the beneficiaries far, far outweigh the people who are hurt by this.”

The budget office analyzed two proposals in its report. The first would increase the minimum wage to $10.10 by mid-2016 and would tie it to the Consumer Price Index, so that it would increase with inflation over time. It would also increase the minimum wage for workers who receive tips for services.

The second proposal would increase the minimum wage to $9, without any indexing for inflation. That would have much smaller effects, the budget office found. It would reduce employment by 100,000 workers by the second half of 2016 and push about 300,000 people above the poverty line.

The higher minimum wage would reduce employment in two main ways, the budget office report said. Businesses facing higher labor costs would raise prices, passing those higher costs on to their customers. That would lead their customers to cut back on their purchases, meaning that businesses would need fewer workers.

Raising the minimum wage would also make hiring low-wage workers more expensive relative to other investments, like new machinery. Businesses might then reduce their use of low-wage workers and shift their spending toward other things, like automated systems.

But a higher minimum wage would offset at least part, if not all, of that effect by helping increase spending by lower income workers throughout the economy.

Several Democratic lawmakers said that the budget office’s findings only underscored the need for the $10.10 minimum wage to pass.

“The CBO made it absolutely clear: Raising the minimum wage would lift almost 1 million Americans out of poverty, increase the pay of low-income workers by $31 billion and help build an economy that works for everyone,” said Rep. Nancy Pelosi of California, the minority leader.

Posted to: Business Jobs

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Slavery has been illegal for

Slavery has been illegal for a long time, but still exists in the form of very low wages. The theory that prices will rise if minimum slave wages are increased is not true. When more people have disposable income to spend restaurants have more customers, people change jobs less often, durable goods can be purchased, savings increase, prices stabilize and crime goes down. Businesses can now purchase material in bulk as revenues expand. There is little proof that raising the minimum wage so that people can have a living wage causes inflation. Quiet the contrary. Now people will have income to spend and businesses will be ready to accommodate the new customers. Companies like Cosco have fair wages without inflation.

slave wages?

Seven bucks an hour for nuking a burger and screwing up an order seems about right.

Try feeding your children

Try feeding your children and paying rent at that wage. Keeping people poor does not help the middle class.

Try improving yourself to the point you can afford to

raise your children before having them and not expecting the world to support them. Don't have 5 kids and work flipping hamburgers. Most of us started in a minimum wage job and worked hard and improved ourselves before having children, and that has nothing to do with others keeping someone down, this is the land of opportunity.

This is the land of

This is the land of opportunity for the gifted, the wise, those with inheritance, and the lucky. Some people who have struggled all their lives have climbed little on the ladder of wealth. Ideally, if a person could put their mind to it, he could go anywhere. It's kind of like the parent who tells their kid he can be President of the US some day. We know that is unlikely. It is easy to blame those who have had misfortune or made unwise choices which haunt them the complete lifetime. Makes one feel a little superior. However, American policy should be about what is best for all Americans regardless of ideology. It is not in the greater interest of the nation to have so many people below the poverty line.


It IS easy to blame, and that is why so many conservatives like to do it, especially when it comes to the poor. It is always blame the victim with them; it doesn't matter that they do not know anything about these peoples' lives. There are many reasons why some people cannot move ahead or move quickly. Some people do make poor decisions and most of the people I know, including myself, have made at least one during our lives. Why do some people want others to suffer so much for their mistakes? I guess it makes them look better? If they only knew how stupid they sound.


Last time I checked, the kid who routinely screws up my order at McDonalds applied for his job, gets paid for his labor, is allowed to quit whenever he wants to quit, goes home at the end of his shift, and doesn't risk getting whipped at his master's whim. Then again, it's been more than 20 years since I worked fast food.

Comparing working minimum wage in 21st Century America to slavery is an insult to those who live in bondage, hyperbole or not.

reward work

Denmark has a minimum pay rate of the equivalent of about $20 an hour, but its business climate is sufficiently healthy for the World Bank to ranked it as the easiest place in Europe to do business in 2011, 2012, and 2013. Denmark is also "among the leading countries in income equality and national happiness." Denmark also had a lower unemployment rate (6.8%) and higher labor participation rate (64.4%) than the United States (7.4%, 63.6% as of September 2013) where the minimum wage is far lower ($7.25).



Why not China? Or North Korea? Canada? Great Britain?

You chose Denmark?

mustang.freddy: ...no kidding, denmark...

...I guess the sound of one-hand clapping brought up tiny Demark again. Demark, population about 5.6 million, not even 3/4 the size of Virginia with a 90% homogeneous population and very limited immigration and one-hand clapping tries to equate it to the open borders entire United States of America, population 317 million. Now that's so pathetically economically wrong it's funny!

raising the minimum wage by 87%

As a 1995 paper in the Journal of Economics Literature put it, “There is a long history of empirical studies attempting to pin down the effects of minimum wages, with limited success.” No one found significant employment losses when President Truman raised the minimum wage by 87% in 1950. When Congress raised the minimum wage by 28% in two steps in 1967, businesses predicted large employment losses and price increases. As the Wall Street Journal reported six months later, “Employment and prices show little effect from $1.40-an-hour guarantee.”


And tthey have the highest tax rate in the world

at 48.9% tax-to-GDP ratio

No, Belgium has the highest

No, Belgium has the highest tax rate followed by Italia and France.

Perhaps there is more current data, but

in 2011, it was Denmark. Perhaps they have been overtaken now by the other three countries.


and they have the happiest people

When scientists polled all the countries in the world, they found that year after year the happiest country on earth is Denmark.

But the happiest people in the world pay some of the highest taxes in the world -- between 50 percent and 70 percent of their incomes. In exchange, the government covers all health care and education, and spends more per capita on children and the elderly than any country in the world. The system is efficient, and people feel "tryghed" -- the Danish word for "tucked in" -- like a snug child.


Why not give minimum wage worgers a

1% raise like federal workers, If it's fair for one why not others?
I would even say a .25 cent per hour raise. But going from $7.25 to $10.10 or as many workers want $15.00 an hour is overpaid. If people think that when the cost of doing business goes up the owner won't raise prices to keep up they are mistaken.

why not cut your government benefits?

I think you are overpaid.

Minimum wage for Americans

That is the topic. Try staying on topic. Personal attacks are something most if us try to teach our children not to partake in.

Because they are protected

by the Constitution. It something EARNED something you know nothing about

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