White House Says Minimum Wage Hike Will Not Affect Employment

Contradicts CBO report that hike would eliminate 500,000 jobs

February 18, 2014

A top White House economist says that President Obama’s minimum wage increase will have "zero effect" on employment, despite a CBO report that the proposed hike would likely eliminate 500,000 jobs.

"Our view is that zero is a perfectly reasonable estimate of the impact of raising the minimum wage on employment," Council of Economic Advisers chairman Jason Furman said on a conference call with reporters shortly after the report came out.

Furman said the CBO was out-of-step with the White House’s views on the proposed 40 percent hike, though he praised the report for highlighting wage boosts that will accompany the hike.

"Sometimes you have respectful disagreement among economists," he said of the parts of the study that did not confirm White House rhetoric about the $10.10 wage.

The CBO report found that the wage hike leave up to 1 million workers unemployed, and that the vast majority of benefits would go to middle class earners rather than those living below the poverty line.

"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 goes on to note that less than 20 percent of beneficiaries from the increased minimum wage are living in poverty. Nearly 30 percent of those who will see their incomes increase already earn three times above the poverty line.

"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."

The CBO also analyzed alternative policies aimed at addressing poverty, including a conservative proposal to increase the Earned Income Tax Credit for the working poor.

"By contrast, an increase in the EITC would go almost entirely to lower-income families," the report said. "The EITC encourages more people in low-income families to work—particularly unmarried custodial parents, often mothers, for whom the EITC is larger than it is for people without children."

Published under: Minimum Wage