Pros, cons of raising the minimum wage

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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.”

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