CBO: Minimum Wage Hike Could Leave 1 Million Unemployed

February 18, 2014

The 40 percent minimum wage hike touted by President Obama and congressional Democrats would cut 500,000 jobs and could leave as many as 1 million people unemployed, according to the Congressional Budget Office.

"The $10.10 option would reduce total employment by about 500,000 workers," the CBO said. "As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers."

The report, released Tuesday, confirms the suspicions of many wage hike opponents, who have argued that higher labor costs for entry level work would lead employers to hire fewer people. The findings fly in the face of President Obama’s recent rhetoric regarding the wage hike.

"The opponents of the minimum wage have been using the same arguments for years, and time and again they’ve been proven wrong.  Raising the minimum wage is good for business, and it's good for workers, and it's good for the economy," Obama said on a Feb. 12 speech on raising the minimum wage for government contractors.

Michael Saltsman, research director at the Employment Policies Institute, said that the CBO demonstrates that Obama is clearly on the wrong side of the issue.

"The CBO has confirmed what the vast majority of careful, peer-reviewed economic research has also shown: Raising the minimum wage will reduce job opportunities for the least-skilled employees, at a time when unemployment for young adults has been above 20 percent for more than five years," he said.

The CBO report comes one week after the White House released data that contradicted Obama’s arguments in favor of raising the wage. A White House presentation found that the majority of minimum wage earners are not impoverished breadwinners supporting families. Three in four minimum wage workers are childless and many of those workers are teenagers.

The presentation also found that the majority of people who will benefit from the wage hike live far above the poverty line. More than 20 percent of earners who will benefit come from households that bring in more than $75,000 per year—50 percent higher than the median household income in 2013. Another 32 percent come from households that earn between $35,000 and $75,000 annually, placing them at least 48 percent above the federal poverty line for a family of four.

The CBO found that less than 20 percent of beneficiaries come from families living below the poverty line, while 80 percent of the benefit will go to middle and upper middle income households.

"The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families," the CBO said. "Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates."

While the impoverished will not enjoy a large share of the higher earnings, they will bare the brunt of increased unemployment, according to Saltsman. Those living in poverty are less educated and do not have the skills or job experience that higher income households have, making it even harder for them to get jobs amid higher labor costs.

"Instead of creating more barriers to entry-level employment, President Obama and other proponent of a higher minimum wage should instead focus on policies that help create jobs," Saltsman said.

Published under: Minimum Wage