Report: Minimum Wage Hike Would Lift Earnings But Cost Jobs

A report from the nonpartisan Congressional Budget Office enters a polarizing political debate

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US President Barack Obama speaks on the economy at the Safeway Distribution Center in Upper Marlboro, Maryland, on February 18, 2014

President Barack Obama’s plan to increase the federal minimum wage would raise earnings for millions of Americans and lift almost one million out of poverty, but would also cost the economy hundreds of thousands of jobs, according to a new report.

The report released Tuesday by the nonpartisan Congressional Budget Office said that hiking the minimum wage from $7.25 per hour to $10.10 per hour would increase earnings for 16.5 million workers by the second half of 2016 and would create some jobs as higher-wage workers had more money to spend. But it would also reduce total employment by about 500,000 workers, or about 0.3 percent, the CBO said.

Obama and congressional Democrats have been trying to make the minimum wage a key issue ahead of the 2014 midterm elections, arguing that the federal government should do more to combat income inequality. Obama said during his State of the Union address last month that he would issue an executive order raising the minimum wage for a limited number of federal contractors, but an increase in the minimum wage for all workers requires congressional action.

Republicans have opposed a minimum-wage hike as destructive to the economy, and both sides used the new report to hammer home their points on Tuesday.

“This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working,” said Brendan Buck, a spokesman for House Speaker John Boehner. “With unemployment Americans’ top concern, our focus should be creating—not destroying—jobs for those who need them most.”

White House Press Secretary Jay Carney responded to continued Republican opposition by pointing to “ample documentation from respected economists who say the opposite, that there is not evidence that it has a significant impact on jobs and that, to the contrary, it’s beneficial to the economy and to efficiency and productivity.” White House senior adviser Dan Pfeiffer said a natural extension of the GOP’s argument would be to cut wages deeply.

The CBO’s latest report is sure to be a point of continued political wrangling in the months ahead. House Minority Leader Nancy Pelosi said in a statement that “no matter how the critics spin this report, the CBO made it absolutely clear: raising the minimum wage would lift almost one million Americans out of poverty.”

A smaller minimum wage hike to $9 per hour—the plan Obama floated last year—would have a less dramatic effect on the economy, CBO projected, with 7.6 million Americans seeing a rise in wages and overall employment declining by 100,000 workers.