A new report released by the CBO says that raising the minimum wage to $10.10 per hour will allow 500 thousand people to spend more time with their families. Of course, they will be spending that extra time in their parents basement as minimum wage will cost five hundred thousand to a million people to lose their jobs.
From the CBO Report: The Effects of a Minimum-Wage Increase on Employment and Family Income
Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.
The White House failed to point out this tid bit of information in their blog post on White House.gov entitled: Congressional Budget Office Report Finds Minimum Wage Lifts Wages for 16.5 Million Workers
The following are six key points from the latest CBO report. For more information, last week the Council of Economic Advisers (CEA) released a summary of the economic case for raising the minimum wage.
1. CBO finds that raising the minimum wage to $10.10 per hour would directly benefit 16.5 million workers. According to today’s CBO report, 16.5 million people making less than $10.10 per hour would get a raise if the minimum wage is increased. This figure does not include CBO’s estimate of as many as 8.0 million workers who currently earn just above $10.10 an hour but could also potentially see a raise due to the “ripple effect” of a shifting wage structure.
2. CBO finds that raising the minimum wage would increase income for millions of middle-class families, on net, even after accounting for its estimates of job losses. Middle class families earning less than six times the poverty line (i.e., $150,000 for a family of four in 2016) would see an aggregate increase of $19 billion in additional wages, with more than 90 percent of that increase going to families earning less than three times the Federal poverty line (i.e., $75,000 for a family of four in 2016). On net CBO estimates that national income would rise.
This finding is consistent with the fact that 62 percent of expert economists polled by the University of Chicago Booth School of Business agreed that the benefits of raising the minimum wage outweigh any potential costs, as compared to only 16 percent who disagreed.
3. CBO finds that this wage increase would help the economy today. Specifically CBO finds that the extra purchasing power for workers will expand aggregate demand and strengthen the economy today. As CBO wrote, “Raising the minimum wage increases that demand, in CBO’s assessment, because the families that experience increases in income tend to raise their consumption more than the families that experience decreases in income tend to reduce their consumption. In the short term, that increase in demand raises the nation’s output and income slightly.”
This finding is consistent with other research. For example, a study released by economists at the Federal Reserve Bank of Chicago found that raising the minimum wage to $9 per hour would raise growth by 0.3 percentage point in the short run.
4. CBO found that only 12 percent of low-wage workers will be teenagers. Contrary to critics’ claims that teens are the primary beneficiaries of increases in the minimum wage, CBO, found only 12 percent of the workers likely to benefit from a minimum wage increase are teenagers.
5. CBO also found that raising the minimum wage would lift 900,000 people out of poverty. Opponents claim raising the minimum wage won’t reduce poverty, but that is not the case, as many American who work full time are unable to make ends meet. This finding echoes the broad consensus of academic studies on the topic, which is nearly unanimous in finding that increases in the minimum wage reduce poverty.
6. CBO’s estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists. The bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent. CBO also agrees that the employment effect could be essentially zero, but their central estimates are not reflective of a consensus of the economics profession.
The Obama administration challenged the CBO’s estimates on potential job losses, citing the findings of a large group of private economists who saw little or no negative impact from a minimum wage hike.
White House Council of Economic Advisers Chairman Jason Furman said CBO’s report failed to take into account that higher wages would make more workers more productive and save employers money through, for example, lower absenteeism in the workplace.
Seems this White House is great at handing out the dessert before one has to eat the vegetables. Democratic strategists are already out in force saying this will allow folks to start their own businesses… that’s great, until they have to pay their employees $10.10 per hour
Politisite is interested in what you think. Is President Obama’s initiative to Raise the Minimum Wage a Good Idea?
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