CBO Report Hits Minimum Wage

The new CBO report also said a counter-balancing, positive effect would be an increase in income levels.

WASHINGTON — The nonpartisan Congressional Budget Office said in a report released Tuesday that an increase in the federal minimum wage to $10.10 by 2016, a legislative proposal supported by President Obama and Congressional Democrats but opposed by some retail groups, could lead to a loss of 500,000 jobs.

But the new CBO report also said a counter-balancing, positive effect would be an increase in income levels. The report said a wage hike to $10.10 an hour tied to inflation could increase the average weekly incomes of about 16.5 million low-wage earners, increase the pay of low-wage earners by a total of $31 billion and lift 900,000 families above the poverty line.

President Obama urged Congress in his State of the Union address to pass an existing bill increasing the national minimum wage to $10.10 an hour from $7.25 and indexing it to inflation by the second half of 2016. He also signed an executive order last week to require federal contractors pay federally funded employees a “fair wage” of at least $10.10 an hour.

The new push in Washington to raise the minimum wage has reopened the debate in the retail sector about whether it would have a direct impact on hiring levels. The National Retail Federation is opposed to the proposed increase, arguing it would place a new burden on employers and negatively impact businesses and the hiring of part-time workers in particular. The CBO projection did not break out employment by industry.

The CBO did a second analysis of a minimum-wage increase to $9 an hour without indexing it to inflation and projected a more minimal impact on the economy, with a job loss of 100,000. Under that scenario, 300,000 people would be lifted out of poverty.

In a blog post, Jason Furman, chairman of the Council of Economic Advisers, and Betsey Stevenson, a member of the council, pointed to a recent statement made by seven Nobel Prize winners and 600 economists, and argued that the CBO’s estimate of a 0.3 percent decrease in employment does “not reflect the overall consensus view of economists, which is that raising the minimum wage has little or no negative effect on employment.”