CBO report: Higher minimum wage could cost 500,000 new jobs

While raising the minimum wage to $10.10 will lift as many as 900,000 workers out of poverty, the report said that employers will be reluctant to offer new jobs to offset the cost of higher wages.
Posted By Ananth Baliga  |  Feb. 18, 2014 at 5:07 PM
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WASHINGTON, Feb. 18 (UPI) -- A Congressional Budget Office report released Tuesday suggests that President Obama's plan to increase the minimum wage to $10.10 could result in 500,000 fewer new jobs, as employers reduce the number of jobs to make up for the higher wages.

The minimum wage hike has been pushed by the White House and Congressional Democrats, and the CBO report has sparked reactions on both sides of the aisle. While Democrats continue to cite economists who suggest that a hike in the minimum wage will have no effect on unemployment, Republicans, who are opposed to any kind of hike, are calling the the move a 'job killer.'

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

Minority Leader Nancy Pelosi, D-Calif. voiced doubts about the veracity of the CBO's estimate citing economic reports that suggest a wage hike could provide a stimulus to the economy.

"What's more, in past years, the CBO itself has acknowledged the uncertainty of its own predictions and ignored new perspectives in the wide array of analysis on the minimum wage," she said.

President Obama has attempted to get Congress to raise the minimum wage, but after facing opposition from Republicans, he decided to issue an executive order last month, raising the minimum wage to $10.10 for government contract workers.

The CBO, in its report, looked at two scenarios -- raising the minimum wage to $9 and to $10.10. It concluded that a $9 hike would lift 300,000 workers above the poverty line but could cost 100,000 new jobs. The $10.10 hike, as proposed by Obama, will lift 900,000 workers above the poverty line, but could cost 500,000 jobs.

While Democrats are preparing to use the issue this November, any attempt now to raise the minimum wage would only get through the Senate, and would be blocked in the House.

In 2007, when Congress last raised the minimum wage to its present level of $7.25, the CBO released a report saying that "the potential employment and unemployment impacts of raising the federal minimum wage rate to $7.25 per hour are difficult to predict, but are likely to be small."

[CBO] [USAToday]

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