Economy
4:27 pm
Tue February 18, 2014

CBO Predicts Job Losses From Minimum Wage Hike

Originally published on Tue February 18, 2014 7:58 pm

Transcript

ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

AUDIE CORNISH, HOST:

And I'm Audie Cornish.

A new report out this afternoon poured some gasoline on the already raging debate over whether to raise the minimum wage. The report from the Congressional Budget Office says boosting the federal minimum to $10.10 an hour, as President Obama has proposed, would lift 900,000 people out of poverty. But it would also cost about half-a-million jobs.

NPR's White House correspondent Scott Horsley joins us now to talk about the CBO report.

And, Scott, that sounds like a pretty big tradeoff. A lot of low-wage workers would get a raise. But a lot of people would also get pink slips.

SCOTT HORSLEY, BYLINE: That's right, Audie. For the vast majority of low-wage workers, a higher minimum would be a good thing. CBO says by 2016, when the increase is fully phased in, some 25 million people would see a boost in their pay checks. That extra money in their pockets could also increase demand and give a further boost to economy over all.

But CBO estimates there would be a downside, for some workers who either lose their job or are not able to find a job at the new higher wage. And the midpoint estimate of that would be half a million fewer jobs in 2016.

CORNISH: And how is the White House responding? President Obama and his fellow Democrats have made raising the minimum wage a centerpiece of their economic agenda.

HORSLEY: Yeah, hiking the wage is really popular, certainly with Democrats and Independents but Republicans too. So politically, the White House thinks they have a winner here. And the CBO report could pour a little cold water on that. White House economic advisor Gene Sperling took a cafeteria approach to the report out today. He embraced the findings about higher incomes for millions of families at the low end of the income ladder. But he said forecaster at CBO were wildly off the mark in their estimate of job losses.

GENE SPERLING: Look, a Congressional Budget Office is a very professional place. But sometimes they're wrong and this is one of those times.

HORSLEY: Now, we should say there's a lot of uncertainty in the CBO forecast. Forecasters say it's possible there would be almost no jobs lost with the higher minimum. On the other hand, there could be as many as a million fewer jobs in 2016. So that tells you just how little precision there is here.

CORNISH: We've had a lot of experience with minimum wage increases in the past. Why is there so much uncertainty this time around?

HORSLEY: Well, CBO says this increase would be different than some of those we've seen in the past. Most importantly, it would be bigger. It could go from seven and a quarter, which is the federal minimum now, all the way to 10.10 an hour. That's a 39 percent increase. Now, it would come in stages, not all at once, but it's a pretty big boost. And so, CBO thinks employers might be more sensitive to that, than they some smaller increases that Congress has OK'd in the past.

For comparison purposes, CBO also tried to estimate what would happen if you raise the minimum just to, say, $9 an hour. That's something the president proposed last year. And in that scenario, forecasters said the income gains for those at the bottom would be smaller you'd only bring about 300,000 people out of poverty, rather than 900,000. But the job losses would be smaller too - only about 100,000 instead of half a million.

CORNISH: Now, supporters have also talked about indexing the wage to inflation, so minimum-wage workers would get an automatic cost of living adjustment. What does that do to the numbers?

HORSLEY: Well, it's a mixed picture. On the one hand, if employers knew that they were going to have to pay their low-wage workers more year after year, they might be more inclined for an alternative way of doing things. So the job losses might be higher - that's the approach that the CBO takes.

Proponents, of indexing the wage, on the other hand, say: Look, pegging the wage to inflation would give employers predictability, which is something business people always say they're interested in. So they think that this could actually lead to a smaller decrease in the number of jobs.

CORNISH: That's NPR's Scott Horsley. Scott, thank you.

HORSLEY: My pleasure, Audie.

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