Higher minimum wage a mixed economic bag, says CBO - WTOC-TV: Savannah, Beaufort, SC, News, Weather & Sports

Raising minimum wage would cost jobs, pull 900,000 out of poverty, says report

The Central Budget Office studied two proposals to raise the minimum wage to $10.10 and $9. (Source: MGN) The Central Budget Office studied two proposals to raise the minimum wage to $10.10 and $9. (Source: MGN)
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(RNN) - Raising the United States' minimum wage would boost the income of millions of Americans, but hundreds of thousands would lose their jobs according to a study by the Congressional Budget Office.

The CBO projects that raising the U.S. minimum wage from $7.25 to $10.10 by 2016 would cost about a half-million jobs by late that year. However, the increased income of 16.5 million affected Americans would boost the economy and pull 900,000 people out of poverty.

Response from the left and right began immediately and was predictably contradictory.

Opponents of a minimum-wage increase said the loss of jobs is a deal-breaker regarding congressional legislation.

"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," a spokesman for House Speaker John Boehner, R-OH, said of the report.

A spokeswoman for a nonprofit that favors a minimum wage increase said the projections were overstated.

"The effect of raising the minimum wage is one of the most thoroughly studied topics in modern economics, and the vast majority of the more than 1,000 estimates contained in studies dating back to 1972 show no significant adverse effects on employment," said Christine Owen, executive director of the National Employment Law Project, a nonprofit that favors increasing minimum wage.

A finance professor at Virginia Tech University said decreased demand for unskilled workers is a textbook effect of increased minimum wage. But the overall effect might be offset by increased wages for those who keep their jobs.

The increased revenue to those at or near the poverty level would total about $19 billion a year, the report said.

"If there is no change in the productivity of the affected workers and their wage goes up, then the demand for their labor will go down," said John Easterwood, who teaches in the Pamplin College of Business at VT and has published broadly in his field.

Easterwood said that increased minimum wage would mean household incomes would increase in the aggregate, and consumer spending overall would likely increase despite the initial loss of jobs. The impact of increased consumer spending on the economy could spur production enough to offset some or all of the lost jobs.

Another consideration is that the workers who lose their jobs might have to go on federal assistance, but the cost to the taxpayers would be at least partially offset by working poor who would no longer need federal assistance.

The CBO also analyzed a proposal to raise the minimum wage to $9 an hour, which would reduce employment by about 100,000 and push about 300,000 out of poverty.

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