CBO sees costs, benefits to raising minimum wage

McClatchy Washington BureauFebruary 18, 2014 

Any hopes that the non-partisan Congressional Budget Office would provide a definitive view on the merits of raising the minimum wage were dashed when the referee on fiscal matters effectively said Tuesday that both proponents and opponents are correct.

The CBO determined in a 43-page report to lawmakers that raising the minimum wage would raise family income, particularly for those living near the poverty line. But raising it to the $10.10 per hour as sought by President Barack Obama could also result in the elimination of some jobs for low-wage workers and slightly reduce the overall number for low-wage employment.

The CBO examined the president’s $10.10 option, which would be phased in over three years and then would be indexed annually to the rate of inflation after 2016. The agency also examined an option of raising the bottom hourly wage from the current $7.25 an hour to $9.00 over in two steps in 2015 and 2016, but not index it to inflation thereafter.

 Under the higher minimum wage proposal, there’d be increased earnings of $31 billion but only 19 percent would accrue to families with earnings below the poverty line. There are 16.5 million workers who’d see hourly wages rise under the $10.10 plan, the CBO estimates, but there’d be a net reduction of employment of 500,000 jobs. This plan would also move 900,000 people above the poverty line.

Under the $9.00 plan, 7.6 million would be affected by the change, overall employment would fall by about 100,000 jobs, earnings for these workers would rise by $9 billion and about 22 percent of that sum would go to families with income under the poverty threshold. This plan would move about 300,000 people above the poverty line.

Translation: The higher minimum wage, under either scenario, will increase income that will flow through the economy and boost jobs by an amount that’s very difficult to calculate. But the higher wages will result in the reduction of some low-wage employment.

Once the increases and decreases of income for all workers are calculated, the CBO said, overall real income in the economy would rise by a modest $2 billion.

 

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