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Minimum Wage Hike Could Cost 500,000 Jobs

By Hal M. Bundrick

NEW YORK (MainStreet) Some might think of minimum wage workers as mostly teenagers working after school, on weekends, or at summer jobs. In fact, the Congressional Budget Office reports that three-quarters of the 5.5 million workers earning within 25 cents of the minimum wage are at least 20 years old. Two-fifths work full time and have a median family income of about $30,000.

How would raising the minimum wage impact American workers? The non-partisan CBO says an increase to $10.10 by 2016 from the current minimum wage of $7.25 would boost real income by some $5 billion for families living below the federal poverty level and move some 900,000 people above the poverty threshold. That estimate nets the effect of families whose income would increase and move them out of poverty as well as families whose income would fall and move them into poverty.

It could also reduce total employment by about 500,000 workers.

Must Read: Gen Y: A Lost Generation of Investors

While increased earnings from a higher minimum wage would total $31 billion, just 19% would go to families with household incomes below the poverty level; 29% would go to families earning more than three times the poverty threshold.

Workers with increased earnings would pay more in taxes and receive less in federal benefits, however the CBO says that those who became jobless because of the minimum-wage increase would pay less in taxes and receive more in federal benefits than they would have otherwise.

The CBO also estimates that business profits would be lower due to the wage hike; reducing personal and corporate income tax receipts.

Prices would also rise with an increase to the minimum wage, impacting the cost of federal benefits which are indexed to inflation, such as Social Security. Federal personal income taxes would be reduced, triggered by the parameters of the tax system which change automatically when price levels rise, according to the CBO.

Federal spending that is not subject to statutory caps and is not indexed to changes in the price level might also increase, although the extent of that increase would depend on the concentration of minimum-wage workers in the sectors of the economy in which the federal government was doing such spending.

"Increasing the minimum wage would have two principal effects on low-wage workers. Most of them 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 CBO report concludes.

Written by Hal M. Bundrick for MainStreet

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