Minimum wage hike would kill a half-million jobs: CBO

Raising the minimum wage to $10.10 an hour will cost the U.S. economy a half-million jobs by 2016 but will substantially boost wages for most low-income workers, according to a Congressional Budget Office report released Tuesday that adds a significant hurdle to Democrats’ push for an increase.

Stung by the findings, the White House, which is still facing a sluggish job picture five years after the recession, scrambled for a response. It praised the nonpartisan agency’s finding that low-wage workers’ income would rise but said the CBO job numbers “do not reflect the overall consensus view of economists.”

Republicans predicted that the CBO report will bolster opposition on Capitol Hill, where the issue is likely to come up for votes in the next few weeks.

“Raising the minimum wage would slash jobs and harm an already fragile workforce,” said Sen. John Cornyn, Texas Republican. “Whether it’s Obamacare, a minimum wage hike, or a trillion-dollar stimulus bill charged to the nation’s credit card, the bottom line is the president’s big-government experiment kills jobs.”

The report marks the second time this month that the CBO has caused headaches for President Obama’s domestic agenda. A previous report found that by 2017, Obamacare would create economic incentives that would cause 2 million people to drop out of the labor force.

In Tuesday’s report, the CBO said that raising the hourly minimum wage to $10.10, phased in over the next three years — the proposal Mr. Obama and other Democrats are pushing — would cost about 500,000 jobs.

“Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent,” the nonpartisan scorekeepers said.

The report added that the uncertainty is substantial and the loss could be anywhere from “very slight” to as much as 1 million jobs.

The CBO said a wage increase would cause some businesses to cut the number of jobs to contain labor costs, although most of the working poor would benefit and many would be lifted above the poverty line.

Overall, income would be transferred from the wealthy to the poor, CBO said.

“Once the other changes in income were taken into account, families whose income would be below six times the poverty threshold under current law would see a small increase in income, on net, and families whose income would be higher under current law would see reductions in income, on net,” the analysts reported.

With most of the big spending and debt issues settled for this year, and with Republicans focusing on attacks to Obamacare, Democrats are countering with a campaign on income inequality. The two chief prongs have been an effort to extend long-term federal unemployment benefits and the push to raise the minimum wage.

Mr. Obama has mentioned it repeatedly in recent days, and Senate Democrats have said they will force a vote in the near future. House Democrats, who are in the minority in their chamber, emerged from their annual policy retreat last week to announce that they will undertake an official petition drive to try to force the issue to the House floor over the Republican majority’s objections.

White House economists tried to pick apart the CBO analysis, saying economic scholars have found that minimum wage increases don’t cause major job losses.

Betsey Stevenson, a member of the White House Council of Economic Advisers, said while that goes against traditional economic teaching, there is plenty of evidence that boosting wages also increases productivity and job stability.

“I’ve been also looking at minimum wage studies since my very first days in graduate school, and I really do believe that both the profession and the literature has moved towards thinking over the last couple of decades towards thinking the employment effects are small,” she said.

Several black leaders raised the issue with Mr. Obama in an hourlong meeting at the White House on Tuesday.

“The minimum wage has not kept pace with inflation,” said Marc Morial, president of the National Urban League. “The minimum wage has not kept pace with the productivity of low-income workers. The minimum wage makes good sense.”

The leaders said they didn’t talk about the CBO report with Mr. Obama but afterward discounted it, saying previous studies have shown that raising the minimum wage does not cost jobs. They also said that may be beside the point.

“What must be weighed in any analysis, CBO and others, is that blacks suffer disproportionately from having to do work and not get the kind of wages that we need,” said the Rev. Al Sharpton.

“We had full employment in the black community during slavery,” Mr. Sharpton said. “We just didn’t have wages. So we don’t want just a job, we want a job that pays, and pays so that we can take care of our families.”

The $10.10 minimum wage increase that the CBO analyzed involved raising the rate in three steps from $7.25 an hour to the full $10.10 on July 1, 2016. That increase would be indexed to inflation thereafter, and wages based on tips also would be raised.

The CBO also looked at option to raise the minimum wage to $9 in two phases, in 2015 and 2016. That option didn’t index for inflation.

The last time the minimum wage was increased was late in President George W. Bush’s term. After Democrats won control of the House and Senate, Congress pushed through a gradual rise from $5.15 to the current $7.25 level.

Some states have enacted higher minimum wages, and Mr. Obama this month signed an executive order mandating that federal contractors pay their workers a minimum wage of $10.10 an hour.

A minimum wage increase would have effects throughout the economy, the CBO said. Some workers who make near the proposed minimum wage of $10.10 an hour could receive raises as well so employers could differentiate their lowest-paid workers from others.

The federal budget would be affected by the decrease in real income to those pushed out of jobs and by increases in taxes paid by those whose incomes rise. Some of those workers no longer would be eligible for food stamps, which would save federal money.

The CBO said it’s unclear whether the net effect on the federal budget would be a small increase or a small decrease in deficits.

Robert Greenstein, president of the Center on Budget and Policy Priorities, said that finding was compelling.

“There are still substantial income gains for the bottom and middle of the population, and these income gains are achieved at virtually no budgetary cost,” he said. “When you look at the numbers in the report, the positives using all of CBO’s own numbers substantially outweigh the negatives.”