Federal Minimum Wage Raise Would Eliminate a Million Jobs

While President Obama has been solidifying support for an increase in the federal minimum wage to $10.10 per hour, the Congressional Budget Office (CBO) estimates the increase would eliminate up to one million jobs in the U.S., with a loss of 500,000 jobs being the CBO’s “central estimate”.

The White House was quick to point out that 16.5 million workers in the U.S. would receive a pay increase if the new minimum wage could pass legislative challenges, and that the loss of 500,000 reflected only a 0.3% increase in unemployment.

Three-Stage Increase in Minimum Wage to $10.10 per Hour in 2014

An increase to $10.10 per hour from the current rate of $7.25 per hour would be staged in three increases beginning in 2014 and reaching the $10.10 mark in 2016. Thereafter, the federal minimum wage would be tied to the consumer price index and adjusted annually for inflation.

U.S. Senator Maria Cantwell (D-WA) cosponsored the Fair Minimum Wage Act that raises the federal minimum wage in three steps to the $10.10 level. Cantwell says the legislation would mean a pay raise for 15 million working women and provide higher wages for the parents of 21 million children.

The CBO also assessed the effects of a federal minimum wage fixed at $9.00. Their report estimates that although job losses could reach 100,000 with the $9.00 option, the losses would be considerably fewer than at the $10.10 per hour level. Additionally, an increase to $9.00 would move 300,000 people above the poverty threshold.

What’s Next for the Federal Minimum Wage?

Whereas President Obama recently used an Executive Order to increase the minimum wage for federal contract workers to $10.10 per hour, the federal minimum wage must pass through both houses of Congress before the President would sign it into law. The bill has been introduced in both the House of Representatives and in the Senate where it remains in Committee.

Minimum Wage Increase Effect on Federal Budget

An increase in the federal minimum wage either at the $9.00-per-hour or at the $10.10-per-hour level would be minimal in terms of long-term effects on the federal budget. If either minimum wage increase makes it through Congress, the CBO concluded:

As a group, workers with increased earnings would pay more in taxes and receive less in federal benefits of certain types than they would have otherwise. However, people who became jobless because of the minimum-wage increase, business owners, and consumers facing higher prices would see a reduction in real income and would collectively pay less in taxes and receive more in federal benefits than they would have otherwise. CBO concludes that the net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter.

President Obama Discusses the Proposed Federal Minimum Wage Increase in His Weekly Address

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