Budget office: Wage hike would lift pay, cost jobs
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| FILE - In this Nov. 7, 2013 file photo, Sen. Tom Harkin, D-Iowa speaks with reporters on Capitol Hill in Washington. Boosting the federal minimum wage as President Barack Obama and congressional Democrats are proposing would increase earnings for more than 16.5 million people by 2016 but also cut employment by roughly 500,000 workers, Congress' nonpartisan budget analyst said Tuesday. Harkin, author of the Senate legislation, cited other research concluding that a higher minimum wage would create jobs, not reduce them. |
WASHINGTON
(AP) -- Boosting the federal minimum wage as President Barack Obama and
congressional Democrats are proposing would increase earnings for more
than 16.5 million people by 2016 but also cut employment by roughly
500,000 jobs, Congress' nonpartisan budget analyst said Tuesday.
In
a report containing ammunition for both supporters and opponents of the
Democratic election-year proposal, the Congressional Budget Office said
gradually raising the minimum from $7.25 hourly to $10.10 would lift
900,000 people above the federal poverty level by 2016. That is out of
45 million who would otherwise live in poverty without an increase.
But
the analysis also noted a downside: About 0.3 percent fewer jobs,
especially for low-income workers; higher costs for business owners and
higher prices for consumers.
The study was
unveiled as the Senate prepares for a March debate on a plan by Sen. Tom
Harkin, D-Iowa, ramping up the minimum in three steps to $10.10 by
2016. The proposal is backed by Obama and is a keystone of Democrats'
campaign-season plans to highlight their effort to make incomes more
equitable, but it faces strong Republican opposition and long odds of
approval by Congress.
The analysis, which
examined increases very similar to Harkin's, immediately added fuel to
the partisan dispute over the proposal. It put authoritative weight
behind longtime GOP claims that increasing the minimum wage would cost
jobs by forcing companies to spend more on wages, putting Democrats on
the defensive.
"This report confirms what
we've long known: While helping some, mandating higher wages has real
costs, including fewer people working," said Brendan Buck, spokesman for
House Speaker John Boehner, R-Ohio. "With unemployment Americans' top
concern, our focus should be creating - not destroying - jobs for those
who need them most."
The budget office said
its estimate of employment losses was approximate. It said the actual
impact would likely range from a very slight employment reduction to a
loss of 1 million workers.
"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 - beyond the work already lost due to Obamacare," said
Senate Minority Leader Mitch McConnell, R-Ky., using a favorite nickname
of the GOP's favorite election-year target - Obama's 2010 health care
overhaul.
Democrats cited other studies that
they said concluded employment would not be reduced. They said
job-reduction claims are overblown and outweighed by the benefits to
workers and the overall economy as low-paid employees use their higher
incomes to spend more money.
The CBO job-loss
figures "do not reflect the overall consensus view of economists which
is that raising the minimum wage has little or no negative effect on
employment," Jason Furman, chairman of the White House's Council of
Economic Advisers, said in a blog post with council member Betsey
Stevenson. Instead, they emphasized the millions who would gain higher
wages and the 900,000 boosted above poverty.
"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, increase the pay of low-income workers by $31 billion,
and help build an economy that works for everyone," said House Minority
Leader Nancy Pelosi, D-Calif.
A minimum wage
boost can cost jobs because employers can compensate for their higher
wage costs by raising prices, prompting consumers to purchase fewer
goods and services and, in turn, encouraging companies to hire fewer
workers, the report said. A minimum wage increase also encourages some
businesses to trim the number of low-paid workers.
But the study said the effect can be mixed.
It
noted that some firms would react by getting higher productivity from
their workers, and some would see savings because increased wages could
reduce turnover. Other companies could benefit as increased spending by
low-wage workers boosts demand for their products.
After 2016, Harkin's measure would require the minimum wage to be increased annually to reflect rising inflation.
The
study also examined the impact of boosting the minimum wage to just $9
hourly by 2016 and leaving it at that level afterward. That lesser
increase would have smaller effects: About 100,000 fewer jobs, higher
wages for 7.6 million workers and 300,000 people lifted out of poverty.
The
report said the increase to $10.10 would add $31 billion to the
earnings of low-wage workers. But it
noted that only 19 percent of that
increase would go to families earning less than the poverty threshold,
while 29 percent would go to families earning more than triple the
poverty level. That is because many low-wage earners are not in low-wage
families.
But in addition, income would
decrease by $17 billion for families earning at least six times the
poverty level because that group would be affected most by lost business
income and price increases.
The report said
that besides boosting wages for people earning less than $10.10 hourly,
some people making more than that amount would also see higher earnings
as bosses adjust their pay scales upward.
Some
people's incomes would grow as their earnings increase, causing them to
pay more taxes. But for others, income would fall - reducing their tax
burden - and still others would begin collecting unemployment insurance.
As
a result, the budget office said federal budget deficits would probably
decrease slightly for a few years but then increase slightly after
that.
The budget office estimates that the 2016 poverty level would be $24,100 for a family of four and less for smaller families.
