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WASHINGTON — A popular Democratic proposal to raise the minimum wage to $10.10 an hour, championed by President Obama, might reduce total employment by 500,000 workers by the second half of 2016. But it would also lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week.
That is the conclusion of a detailed assessment of how raising the minimum wage would affect incomes, employment and the federal budget. The report was released Tuesday by the nonpartisan Congressional Budget Office.
The complicated, nuanced analysis provides fuel for both supporters and critics of the policy, which would affect millions of low-wage workers and businesses — showing it might lead to fewer jobs, but also higher incomes.
Republicans said the report demonstrated the damage that raising the minimum wage in a weak economy could do.
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“This report confirms what we’ve long known,” said Brendan Buck, a spokesman for House Speaker John A. Boehner of Ohio. “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.”
But Democrats stressed that the proposal would lift millions of families out of poverty. Some also criticized the budget office’s employment analysis, with Representative George Miller, a California Democrat, calling it “outdated.”
“The C.B.O. 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 Representative Nancy Pelosi of California, the minority leader.
The budget office found that lifting the federal minimum wage, currently $7.25 an hour, would have a complicated effect on the labor market, acting as both a boon and a burden for businesses and workers.
Over all, the budget office estimated that lifting the minimum wage to $10.10 and indexing it to inflation would reduce total employment by about 0.3 percent, or 500,000 workers. But it cautioned that its estimate was imprecise, with the job losses likely to fall in a range from scant to one million.
The proposal would result in winners and losers among the low-wage workers it would focus on, the report found. Some low-wage workers would fail to find a job because of a higher minimum wage, for instance. Thus, some families would see their earnings fall sharply.
But increasing the minimum wage would bolster the earnings of about 16.5 million workers: $5 billion a year more for families living in poverty, $12 billion a year more for families earning from one to three times the poverty threshold.
The budget office analyzed two proposals in its report. The first would increase the minimum wage to $10.10 by mid-2016 and would tie it to the Consumer Price Index, so that it would increase with inflation over time. It would also increase the minimum wage for tipped workers.
The second proposal would increase the minimum wage to $9, without any indexing for inflation. That would have much smaller effects, the budget office found. It would reduce employment by 100,000 workers by the second half of 2016, and push about 300,000 people above the poverty line.
The higher minimum wage would reduce employment in two main ways, the budget office report said. Businesses facing higher labor costs would raise prices, passing those higher costs on to their customers. That would lead their customers to cut back on their purchases, meaning that businesses would need fewer workers.
Raising the minimum wage would also make hiring low-wage workers more expensive relative to other investments, like new machinery. Businesses might then reduce their use of low-wage workers and shift their spending toward other things, like automated systems.
But a higher minimum wage would also leave millions of families with more cash to spend, helping bolster demand throughout the economy.
https://www.nytimes.com/2014/02/19/business/mixed-results-in-us-study-of-increasing-minimum-wage.html?partner=rss&emc=rss&_r=1
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