CBO Says Minimum Wage Hike Reduces Employment, Raises Wages; White House Defends $10.10 Option

NEW YORK (TheStreet) -- The Congressional Budget Office, a nonpartisan federal agency, reported Tuesday that a minimum wage hike would reduce employment and boost families' incomes.

The results come amid a debate between Democrats and Republicans in Washington as to whether the United States should increase the minimum wage requirements -- an argument that could have serious ramifications for control of the House and Senate during the 2014 midterm elections.

The CBO examined the wage-hike effects based on two scenarios: a $10.10 option versus a $9 option.

In the fully implemented $10.10 minimum, the agency found a central estimate of about 500,000 workers would lose their jobs, while boosting income for low-wage workers by $31 billion. However, the CBO said just $5.89 billion of that estimate would accrue for families living below the poverty threshold.

The likely series of employment scenarios for the $10.10 option ranged from a "very slight decrease" to 1 million jobs cuts.

In the fully implemented $9 minimum wage -- a policy President Barack Obama endorsed early last year -- the CBO reported a central estimate of about 100,000 workers would lose work, while income for families living below the poverty line would gain by $1 billion. This, the report said, would lift 300,000 people out of poverty.

Employment scenarios for the $9 option ranged from a "very slight decrease" to a loss of 200,000 jobs.

Republicans quickly endorsed the CBO report as confirmation that higher wages would hurt the labor situation.

"This report confirms what we've long known: while helping some, mandating higher wages has real costs, including fewer people working," Brendan Buck, a spokesman for House Speaker John Boehner, wrote in a statement to reporters.

The White House Tuesday afternoon held a conference call with reporters to defend its position to raise the federal minimum wage to $10.10.

The CBO's estimates on employment for the $10.10 minimum wage don't reflect the overall consensus view of economists, said Jason Furman, chairman of the Council of Economic Advisors.

Furman repeatedly said the CBO's estimates did not reflect the consensus of 64 empirical economic studies the White House has used to support its claim that boosting the minimum wage would have a neutral effect on employment.

"When it comes to employment, I think [the CBO] are not restating what I would understand the consensus to be, and that's where I think there's some respectful disagreement on the emphasis and the certainty around that magnitude of employment loss," Furman said.

When reporters asked if, politically, it would be easier for the White House to convince members of Congress to raise the minimum wage to $9 instead of the $10.10 Obama currently is endorsing, Furman dodged a direct answer. Instead, Furman said the $10.10 hike would boost more families above the poverty line and reiterated that the CBO report on employment did not represent the view of most economists.

Last February, 34% of economists polled by the Chicago Booth School of Business said they agreed that a $9 minimum wage would make it more difficult for low-skilled workers to find jobs. Some 32% disagreed. But what also stuck out in the report was that 24% of the economists said they were uncertain -- a sign of the broad distribution of opinion among economists on the topic.

The present federal minimum wage sits at $7.25 an hour, which the government implemented in July 2009. This increased the previous minimum of $6.55 an hour set in July 2008.

Minimum wage since 2007 has risen nearly 24%, whereas during the 10 years prior to that it rose about 14%.

-- Written by Joe Deaux in New York.

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