How Do Minimum Wage Increases Affect the Economy?

In February 2014, the Congressional Budget Office (CBO) estimated that an increase to the federal minimum wage would eliminate up to one million jobs in the U.S., with a loss of 500,000 jobs being the CBO’s “central estimate”. Last Friday, the United States Department of Labor released a Regional and State Employment and Unemployment Summary essentially stating that not much has changed. Some states are even seeing faster job growth after increasing their minimum wage rates.

John Schmitt, a senior economist at the Center for Economic and Policy Research (CEPR) said of the summary: “It raised serious questions about the claims that a raise in the minimum wage is a jobs disaster.” He also noted that the “data isn’t definitive, but is probably a reasonable first cut at what’s going on.”

The CBO Versus Obama: What Do Minimum Wage and Job Growth Data Mean?

The U.S. is in the midst of a battle between those in favor of a federal minimum wage increase and those opposed to it; those who want to achieve pay equality and a living wage and those who are concerned about stifling business growth through artificial wage increases.

President Obama’s Administration is actively pushing to increase the minimum wage to $10.10 per hour and even used his Executive Order power to mandate a minimum wage increase for Federal contractors. The Department of Labor (DOL) is openly advocating for a federal minimum wage increase and the Obama-appointed Secretary of Labor (Thomas Perez) making whistle-stop tours of workplaces voluntarily paying more than minimum wage.

How could there be disagreement over the effect of minimum wage increases and job growth?

2014 Big Year for Elections

Here are some facts that might shed light on conflicting viewpoints on economic and wage growth data. In 2014:

  • 35 seats in the U.S. Senate are up for election.
  • 435 seats in the U.S. House of Representatives are up for election.
  • 36 governorships are up for election.

Both sides of the political aisle will leverage every bit of data they can to fit their political agendas, and this could be a pivotal year for Democrats to solidify control of the Congress and set the stage for a strong run for the next Presidential election in 2016.

Democrats are hammering on minimum wage increases as a major plank in the party platform because it resonates with nearly 76 million minimum wage workers in the U.S. If the promise of a minimum wage increase gets those people to the polls, the Democrats could assume total control of the country’s political machine from the Federal level down to municipal elections – with cities like Seattle, Seatac, Wash., and Richmond, Calif., increasing their minimum wage well above President Obama’s proposed $10.10 federal minimum wage.

Bear in mind that states like Connecticut and Maryland (who have Democratic majorities in their legislatures and Democratic governors) are making the jump to $10.10 minimum wage rates in stages (2016 and 2018 respectively) – just in time for critical elections but not long enough to determine the enduring effects of significant increases to minimum wage rates.

Who Typically Earns the Federal Minimum Wage?

Minimum wage workers are typically under the age of 25, single, and work part-time. The highest percentages of those workers are employed in the service industry – either in food preparation or waiting tables. The workers waiting tables receive a federal tipped minimum wage – the minimum wage required to be paid to tipped employees. This wage is set lower than the standard federal minimum wage to include customer tips.

For more information on Minimum Wage, please click here.

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