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Pros, cons of raising the minimum wage

By Mark Hamrick · Bankrate.com
Wednesday, February 19, 2014
Posted: 11 am ET

President Obama's agenda may have been dealt another setback by a new report from the non-partisan Congressional Budget Office on the administration's proposal to raise the minimum wage.

The issue is one of many that have Republicans and Democrats entrenched ahead of this year's midterm election, and it seems unlikely that the report will change any minds. In some ways, the minimum wage is the economic equivalent of the abortion issue: Don't bring it up in polite conversation, because few people are undecided about it.

Fans and foes of a higher minimum are taking away different things from the study, similar to what happened earlier this month when a different CBO report said the Affordable Care Act could shrink the U.S. labor force by up to 2.5 million workers.

Fewer jobs, fewer people in poverty

Here's what the CBO says about a possible increase in the minimum wage:

  • Hiking the minimum wage gradually to $10.10 an hour could cost 500,000 jobs by 2016.
  • At the same time, it would affect more than 16 million people, lifting as many as 1 million of them out of poverty. Only about one-fifth of the increase would go to families earning less than the so-called poverty threshold. Some minimum wage earners are in families that aren't doing badly overall.
  • Hiking the minimum wage in two steps to $9 an hour would cut employment by 100,000 jobs.
  • But workers would get $9 billion in increased pay, with 22 percent of that amount going to families living below the poverty line. (The CBO estimates that the poverty threshold in 2016 will be about $24,100 for a family of four.)

The White House responds

"CBO's estimates of the impact of raising the minimum wage on employment does not reflect the current consensus view of economists," the White House says, in a blog post attributed to Jason Furman, Chairman of the Council of Economic Advisers and Betsey Stevenson, member of the CEA. They cite a poll of "expert economists" by the University of Chicago School of Business finding that "62 percent agreed that the benefits of raising the minimum wage outweigh any potential costs, as compared to only 16 percent who disagreed."

In a conference call with reporters, Stevenson said the CBO report fails to take into account the cost savings from "reduced turnover when you raise the wages for lower-wage workers, from reduced absenteeism and from increased productivity."

What Republicans say

Republicans are focusing on the negative.

"When you raise the price of employment, guess what happens? You get less of it," said House Speaker John Boehner, R-OH, at a news conference.

A dead issue?

Greg Valliere, chief political strategist for Potomac Research Group, says the debate over the CBO report may be moot.

"A minimum wage hike is dead in Congress; there's no chance it could pass the House," he says. "And while there are stirrings in the Senate on a retroactive extension of unemployment benefits, the House is a roadblock on that issue as well. With jobs now the top concern of voters (despite the plummeting unemployment rate), the Republicans are content to pound away with their narrative that virtually all the Obama administration policies are job killers."

Follow me on Twitter: @hamrickisms.

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8 Comments
kris
October 09, 2014 at 10:50 am

I don't think it's as easy as just raising the minimum wage=more pay for people under the poverty line. I live in northern California. Our unemployment is pretty high here already. I understand people wanting to make more money... I just keep thinking about what someone making that low income gets as far as programs go to help them that I don't get. Someone making minimum wage most likely qualifies for food stamps to help them with the cost of food, they most likely qualify for Medi-cal so the medical costs are mostly taken care of, they get the earned income tax credit, etc. I don't qualify for any of these and I am only making about 20 bucks an hour. At my job now, my medical costs me 300 dollars bi-weekly. That's 600 bucks a month I lose just for medical benefits. I don't get Cal Fresh so I pay for all the groceries I buy. I feel like I am working at the job I am in, but once calculated, I am not really making as much as one thinks I am. So someone is getting minimum wage, but when you figure all the expenses paid for by the taxpayers (programs), what is the difference in take home pay? It's a complicated issue, raising the minimum wage. I like to look at it just the opposite way. Do you think there will be "More" jobs created if the wage is increased? Do you think prices for goods will go "Down" if the minimum wage is increased? I say probably not. I believe I will be voting against the minimum wage increase. I would say though, if the increase was maybe like, just adjusted for inflation since the last increase, I would be OK with that. I think all wages no matter what should always increase with inflation. As it stands now, the wage paid to me for my job has not increased since 2008 and I think we got a 2% increase in 2010 because of a "Me too" clause, I can't remember, but I know it's not much of an increase and it's not reflective of inflation in California.

Bill Woessner
February 20, 2014 at 1:04 pm

I have a couple of observations about the whole minimum wage debate:

1) I'd like to see what makes $10.10 per hour the "right" minimum wage. What makes it better than $10.09 or $10.11 per hour? Are we just picking arbitrary numbers? Or, perhaps worse, politically expedient numbers?

2) At the minimum wage, one hour's wages will never be able to purchase more than one hour of labor. This is absolutely inescapable. In fact, once you factor in taxes, one hour's wages can't even purchase one hour of labor.

3) Speaking of taxes, if we really want to help the working poor, how about easing their tax burden? They may not pay much in income taxes, but they certainly pay payroll taxes and excise taxes.

Bryan Buchanan
February 20, 2014 at 4:56 am

In the past 20 years min wage has risen only $3 which is less than double, however, gas prices have tripled and food prices have doubled. 20 Years ago gas (in my area) was only .85 - 1.01 a gallon now it stands over $3. How can anyone think that raising min wage again will result in savings. Lets not forget that all prices jumped 3 months before min wage increase kicked in also.

Fran Torres
February 19, 2014 at 7:12 pm

If minimum wage goes up too much at once, so will the price of everything! Where does that leave people who live on their Social Security and are struggling? So, people who are working will get more money and receive less government benefits; however, people on Social Security income only, would then have to sign up for these benefits. This would be humiliating, unfair and detrimental.

Freddy K
February 19, 2014 at 5:24 pm

In your article you state "republicans are focusing on the negative". I don't think they are focusing on the negative, just the obvious. Let's use some common sense here. If the Government FORCES a business to pay its employees more than they are now earning, the business has two choices. Charge more for its services and/or products, or reduce its labor force. I think that is a statement of reality, not "focusing on the negative".

Adam Meyer
February 19, 2014 at 4:06 pm

I am all for the raising of the minimum wage however I don't know if alot of these people who earn a minimum wage and also collect food stamps and welfare realize that when their wage goes up their welfare benifits go down.

Rick Westwood
February 19, 2014 at 3:45 pm

I am not sure where the CBO calculates its poverty level. But in the Seattle Washington area a single person needs to make a minimum of 30K per year to survive.

The poverty level should be adjusted to the area in which you live in.

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