Jobs

The CBO Foresees Lost Jobs From a Higher Minimum Wage


The Congressional Budget Office is nonpartisan and stacked with well-trained economists, so when it says that a $10.10 federal minimum wage could cost about half a million jobs—as it did today—the conclusion deserves to be taken seriously.

But what’s equally important is the CBO’s commendable admission that no one really knows for sure. While 500,000 lost jobs is the central estimate, the likely range of job reductions goes from “very slight” to 1 million. I tried to convey that uncertainty in my cover story this week, which said “there’s a defensible case that the sweet spot is in the neighborhood” of $10.10.

Here’s the CBO’s take:

Congressional Budget Office

It would be ideal if a higher minimum wage cost zero jobs, but it could make sense to raise the minimum wage even if some jobs are lost because of the benefits of higher pay to people who do have jobs. This is a painful question of trade-offs, to which there is no clear right or wrong answer.

One thing is clear from the CBO’s report: The minimum wage would redistribute income, Robin Hood-like, from the rich to the poor. Here’s the breakdown:

“Real income would increase, on net, by $5 billion for families whose income will be below the poverty threshold under current law, boosting their average family income by about 3 percent and moving about 900,000 people, on net, above the poverty threshold (out of the roughly 45 million people who are projected to be below that threshold under current law).

“Families whose income would have been between one and three times the poverty threshold would receive, on net, $12 billion in additional real income. About $2 billion, on net, would go to families whose income would have been between three and six times the poverty threshold.

“Real income would decrease, on net, by $17 billion for families whose income would otherwise have been six times the poverty threshold or more, lowering their average family income by 0.4 percent.”

Iowa Democratic Senator Tom Harkin, a co-sponsor of the $10.10 measure that President Barack Obama endorses, issued a statement today challenging the CBO report. He noted that last month seven Nobel prize-winning economists and four former presidents of the American Economic Association, along with more than 600 other economists, signed a letter to Congress urging passage of the $10.10 floor. The academics noted recent research “showing that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market.”

The CBO report was greeted more warmly by the Employment Policies Institute, which represents employers and opposes a higher minimum wage. “The CBO’s estimate of lost jobs is broadly consistent with EPI’s earlier estimates, which found that at least 360,000 jobs—and as many as 1 million—would be lost from a $10.10 minimum wage increase,” the group said.

Numbers as precise as “360,000” should be taken with a grain of salt in a field with so much uncertainty. Nevertheless, as I wrote in the cover story, “even if the minimum wage detractors overstate their case, they’re right to warn that raising it too much can cause more harm than good.” Reasonable people can disagree—and do disagree—about the point where the bad begins to outweigh the good. The CBO report is one more voice in the debate.

Coy_190
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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