Congressional Budget Office Says Raising the Minimum Wage Could Cost 1 Million Jobs

Raising the federal minimum wage to $10.10 as
President Obama and Senate Democrats have
proposed could cost the economy somewhere in the range of
500,000 jobs, and possibly as many as 1 million, according to a

new report from the Congressional Budget Office. An increase to
$9 an hour from the current $7.25 would result in a smaller
decrease of 100,000 to 200,000 workers.

Job losses would be concentrated amongst lower income workers,
while gains from higher wages would be spread across the income
spectrum. The budget office estimates that about 29 percent of the
income gains that would follow from a minimum wage hike would go to
families earning three times the poverty level. That’s because
low-wage workers aren’t always members of low-income families—think
of middle-class teenagers working summer jobs. 

Some people would benefit from the move, although not as many as
President Obama has suggested. The CBO estimates that hiking the
minimum wage to $10.10 would raise net incomes by about $2 billion
and lift about 900,000 people above the poverty threshold by the
middle of 2016. That suggests that a hike packs less punch than the
White House has suggested. In a
speech earlier this month, Obama said that raising the minimum
wage would “lift millions of Americans out of poverty
immediately.”

Besides job loss, the budget office predicts that there would be
other economic consequences as well. “The increased earnings for
some workers would be accompanied by reductions in real
(inflation-adjusted) income for the people who became jobless
because of the minimum-wage increase, for business owners, and for
consumers facing higher prices,” the CBO report says.

Arguments about the economic effects of raising minimum wage get
fairly technical pretty fast, and economists are broadly split on
what the results would be. As the CBO notes in a footnote, a recent
survey of economists found that 40 percent agreed that a hike to $9
and hour would make it harder for low-skilled workers to find
employment, but 38 percent said it would not, and 22 percent were
uncertain.

It’s complex and highly politicized, and the CBO tries hard to
avoid politicization to the extent that it’s possible. So this
report is probably best taken as a wonky but readable guide to the
economic research on the topic. And it’s probably not worth
investing too much in the specific point projections about jobs
lost and incomes raised. Instead, it’s best to think of the report
as highlighting the variety of economic costs and trade-offs that
would come with a hike in the minimum wage, including job loss, and
a reminder that the administration has an incentive to downplay
potential negatives and paint its policy proposals in the most
positive possible light.