A Congressional Budget Office report on the minimum wage has posed an old question to Capitol Hill: Are you willing to cut hundreds of thousands of jobs to give higher wages to millions?
The CBO report , which was released Tuesday and has drawn criticism from some Democrats and the White House, said increasing the minimum wage would have two main effects on low-wage workers:
"Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly."The report, at the request of lawmakers, studied the effects of raising the minimum wage to $9 per hour — as the president proposed a year ago — and $10.10 per hour as he proposed this year and as the so-called "Fair Minimum Wage Act of 2013" would do after two years, subsequently indexing the minimum wage to inflation.
The effect of raising the wage to $9 per hour, according to the CBO, would be a net loss of 100,000 jobs but higher wages for approximately 7.6 million people. In turn, raising the minimum wage to $10.10 an hour would result in 500,000 jobs lost but raise wages for 16.5 million, according to the analysis. Democrats have looked at income inequality and raising the minimum wage as winning election-year arguments. But Republicans now have the talking point they've been looking for on raising the minimum wage: it will cost jobs, and the CBO says so.
“This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working," wrote Brendan Buck, a spokesman for Speaker John A. Boehner, R-Ohio. "With unemployment Americans’ top concern, our focus should be creating — not destroying — jobs for those who need them most.”
But Democrats saw the news differently.
“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 Minority Leader Nancy Pelosi, D-Calif., in a statement Tuesday.
Pelosi, however, acknowledged that the CBO report wasn't all good news. To wit, she took some shots at the report which Democrats characterized as "very uncertain."
“There is little new in the CBO’s arguments about the impact of increasing the minimum wage on employment," she wrote. "In fact, its conclusions contradict the consensus among hundreds of America’s top economists, who predict that a wage hike would actually stimulate the economy, raise demand and job growth, and provide help in job creation. 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."
Pelosi ended her statement by calling on House Republican leadership to bring up the "Fair Minimum Wage Act of 2013," a bill for which Democrats plan to offer a discharge petition.
The House sponsor of that bill, Education and the Workforce ranking Democrat George Miller of California, released a statement that also criticized the nonpartisan CBO.
“While CBO has reproduced an outdated view of the employment effects of the minimum wage, this report’s findings on poverty reduction add to the forward momentum created by more than 600 economists, savvy businesses across the country, and millions of hard-working American families who understand that a wage increase will boost the economy," said Miller, who did praise the report because it "confirms that raising the minimum wage will lift nearly a million people above the poverty line."
The White House, for its part, was focusing on the 16.5 million workers who would benefit from a minimum wage raise to $10.10 an hour. In a blog post from Jason Furman, the chairman of the Council of Economic Advisers, and Betsey Stevenson, a member of Council of Economic Advisers, the White House downplayed the negative effect on employment — nowhere does it mention the number of jobs lost, only the "0.3 percent decrease in employment" — and highlighted the positive effect on wages.
"Overall the logic for the finding that raising the minimum wage does not result in large adverse impacts on employment is that paying workers a better wage can improve productivity and thereby reduce unit labor costs," Furman and Stevenson wrote.
The White House also took their shot at the CBO, saying the "CBO’s estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists." The White House, like many Democrats on Tuesday, pointed to a recent letter from more than 600 economists which challenged conventional conclusions on raising the minimum wage, and Furman and Stevenson pointed out that even the CBO admitted the employment effect "could be essentially zero."
"CBO’s estimates do not appear to fully reflect the increased emphasis on all of these factors from the recent economics literature," they wrote.
The duo reiterated their remarks in a hastily held conference call to react to the report.
Meanwhile, the report is likely to give Republicans additional fodder against legislation to raise the minimum wage. Democrats emerged from their annual retreat ready to file a discharge petition for the "Fair Minimum Wage Act." But the report is likely to damage Democratic chances of finding enough Republicans willing to go against GOP leadership to sign the discharge petition.