WASHINGTON, DC - FEBRUARY 12: Workers celebrate after U.S. President Barack Obama signed an executive order to raise the minimum wage for federal contractors from $7.25 to $10.10 during an East Room event February 12, 2014 at the White House in Washington, DC (Getty Images)
Raising the federal minimum wage to $10.10 an hour by 2016 will eliminate some 500,000 jobs, according to a government report released Tuesday.
"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," the nonpartisan Congressional Budget Office said. "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 CBO also said in its report that a sudden increase would lift some 900,000 Americans above the federal poverty line, adding that the increased earnings for low-wage workers resulting from higher wages would total approximately $31 billion.
"However," the report continued, "those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold," CBO said.
"Moreover, 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 report added.
The report comes at a time when President Barack Obama and his allies in Congress have rallied behind efforts to raise the federal hourly wage from its current rate of $7.25 an hour. Republican lawmakers, however, have opposed these measures, arguing that any sudden increase in the cost of labor will lead to the loss of jobs.
Unsurprisingly, Tuesday’s CBO report has only emboldened conservative arguments against the president’s latest crusade against so-called “income inequality.”
"This report confirms what we've long known: While helping some, mandating higher wages has real costs, including fewer people working," said Brendan Buck, spokesman for House Speaker John Boehner (R-Ohio). "With unemployment Americans' top concern, our focus should be creating - not destroying - jobs for those who need them most."
But Democratic lawmakers remain unfazed by the CBO report, insisting that their plan to boost wages will lift millions of Americans out of poverty.
"No matter how the critics spin this report, the CBO 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 House Minority Leader Nancy Pelosi (D-Calif.).
Sen. Tom Harkin (D-Iowa), one of the chief architects of the wage increase proposal, brushed off the CBO report and cited outside sources claiming wage increases will create jobs, not eliminate them.
"And as the CBO report affirms, an increase in the minimum wage will help lift families out of poverty," Harkin said.
The CBO explained in its findings that the proposed wage increase would boost the earnings of approximately 16.5 million Americans.
"Many more low-wage workers would see an increase in their earnings. Of those workers who will earn up to $10.10 under current law, most -- about 16.5 million, according to CBO’s estimates -- would have higher earnings during an average week in the second half of 2016 if the $10.10 option was implemented," CBO said.
"Some of the people earning slightly more than $10.10 would also have higher earnings under that option, for reasons discussed below. Further, a few higher-wage workers would owe their jobs and increased earnings to the heightened demand for goods and services that would result from the minimum-wage increase," the report added.
CBO reviewed proposals similar to Harkin's and focused on the impact they would have in late 2016 when the Senate proposal is supposed to take full effect.
“After 2016, Harkin's bill would require the minimum wage to be increased annually to reflect rising inflation,” the Associated Press reported.
The CBO's finding on job losses is an approximation.
“They said the actual impact could range from a very slight employment reduction to a loss of 1 million workers,” the AP added. “The report said that besides boosting wages for people earning less than $10.10 hourly, some people making more than that amount would also see higher earnings as bosses adjust their pay scales upward.”
Read the CBO report here:
James Pethokoukis of the American Enterprise Institute offers his take on the CBO's findings: "So we lose maybe 500,000 jobs (the first rung for many on the upward mobility ladder) for an anti-poverty policy where half the benefits go to families whose income is three times the poverty threshold or more (see above chart). This does not sound like optimal anti-poverty policy to me, especially as compared to expanding the [Earned Income Tax Credit] and adding a wage subsidy."
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This post has been updated.