CBO Report Offers Mixed Response About Raising The Federal Minimum Wage

strikeYesterday the nonpartisan Congressional Budget Office (CBO) released a new report that weighed in about the future impact of a minimum wage increase in America.

The CBO report offered a mixed response about how raising the minimum wage would impact the U.S. labor market and lift more low wage Americans above the poverty rate by increasing the federal minimum wage of $7.25 an hour ($15,080 for a full-time, year-round worker) to $9.00 or $10.10 an hour.

The CBO report states, ” low wage workers would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.”

The report cited two future scenarios of raising the federal minimum wage that is currently being debated on Capitol Hill.

The first includes raising the minimum wage to $10.10 an hour while the second includes a more modest increase to $9.00.

According to the CBO, if the minimum wage is increased to $10.10 an hour, 16.5 million workers would see their earnings rise and 900,000 Americans will move above the federal poverty threshold of $11,490 for 1 person or $23,550 for a family of four.

“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).”

But the CBO report also cited some potential job losses in the range of 500,000 or 0.3 percent if the minimum wage is increased to $10.10 and hour by the second half of 2016.

If the federal minimum wage is increased more modestly to $9.00 an hour, it would move about 300,000 people above the poverty threshold.

Roughly 7.6 million workers who will earn up to $9.00 per hour under current law would have higher earnings during an average week in the second half of 2016 if this option was implemented, CBO estimates.

However, the CBO also estimates that the $9.00 option would reduce employment by about 100,000 workers, or by less than 0.1 percent.

White House reaction to the new CBO report has been less than favorable.

White House Chairman of Council of Economic Advisors Jason Furman told reporters yesterday that the CBO report “goes outside the consensus view when it comes to the impact of the minimum wage on employment,”

A week ago, President Obama signed an executive order that increased the minimum wage for federal contract workers.

The Senate could decide to begin debating new legislation to increase the minimum wage legislation beginning next month.

A recent January poll from Quinnipiac suggests that most Americans, including many Republicans, support raising the minimum wage.

Polled American support raising the federal minimum wage by a margin of 72 percent to 27 percent.

Republicans supported the increase by a margin of 52 percent to 45 percent. But there were mixed responses about how much the federal minimum wage should be raised.

33 percent of voters say increase the minimum wage to $10.10 per hour

  • 18 percent say increase it from the current $7.25 per hour to something less than $10.10;
  • 18 percent say increase it to more than $10.10 per hour;
  • 27 percent say don’t increase the minimum wage.

When asked about whether raising the minimum wage will lead businesses to cut jobs, polled voters said yes by a margin of 50 to 45 percent.

Polled Republicans were more likely to see job cuts who voted 68 – 29 percent while Democrats said they don’t see more job cuts by a margin of 65 – 29 percent. Independent voters expect job cuts 51- 45 percent.

Facts About The Minimum Wage

At the federal level, the minimum wage was last increased on July 24, 2009, when it increased from $6.55 to $7.25 per hour, the last step of a three-step increase approved by Congress in 2007.

Prior to 2007, the minimum wage was stuck at $5.15 per hour for ten years.

From 1990-2000’s U.S. states raised their minimum wages a number of times in response to the lack of federal action to raise the minimum wage.  Nineteen states and the District of Columbia have raised their minimum wages higher than the current federal rate of $7.25 per hour.

Ten states (Arizona, Colorado, Florida, Missouri, Montana, Nevada, Ohio, Oregon, Vermont, and Washington) have adopted “indexing” for their minimum wages which results in increases to keep pace with the rising cost of living.

Five states including Alabama, Louisiana, Mississippi, South Carolina and Tennessee  have no state minimum wage laws. However, employers in those states are still required to pay the federal minimum wage.

The minimum wage of $1.60 an hour in 1968 would be $10.56 today when adjusted for inflation.

 

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