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Policy: Economy

Three ways that the CBO contradicts Obama on minimum wage

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Beltway Confidential,Opinion,Philip Klein,Barack Obama,Labor,Economy,CBO,Minimum Wage,Unemployment

A new report by the Congressional Budget Office (see this summary by the Washington Examiner's Joseph Lawler) contradicts several arguments President Obama has advanced as part of his campaign to raise the federal minimum wage to $10.10 per hour.

Below, I've included excerpts from Obama's Feb. 12 speech pushing for a minimum wage hike followed by the CBO analysis.

Obama: “The opponents of the minimum wage have been using the same arguments for years, and time and again they’ve been proven wrong. Raising the minimum wage is good for business, and it's good for workers, and it's good for the economy.”

The CBO analysis took into account Obama’s argument that if people have higher wages, they’ll increase demand for goods and services. But on a net basis, the CBO still projected that raising the minimum wage to $10.10 would reduce employment by 500,000 workers. According to the CBO's broader range estimate, in a best-case scenario, it could lead to a “very slight decrease” in employment and in a worst-case scenario, it would mean one million workers losing jobs.

Obama: "Rais[ing] the federal minimum wage to $10.10 wouldn’t just raise wages for minimum-wage workers, its effect would lift wages for about 28 million Americans.”

The CBO said that 16.5 million workers -- not 28 million -- would receive a raise if the minimum wage is raised and that “increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion.” However, this increase would be paired with lower effective earnings “for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices.” Thus, “Once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2 billion.”

Obama: Raising the minimum wage to $10.10 per hour, “would lift millions of Americans out of poverty immediately.”

CBO said that “just 19 percent” of the increased earnings from a higher minimum wage “would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold.” As a result, CBO estimated the hike would move 900,000 people out of poverty of the 45 million who are projected to be in poverty under current law. But it wouldn’t accomplish this “immediately” as the estimate applies to the second half of 2016.

The bottom line is that Obama has presented hiking the minimum wage as a no-brainer that would boost the economy, increase wages and immediately reduce poverty without adverse effects. CBO has estimated that in reality, the action would raise unemployment among lower-income workers, deliver most of its benefits to families living above the poverty level, and have offsetting adverse effects on businesses and consumers. To the extent that it will reduce poverty, according to the CBO, the effect will be less significant and less immediate than what Obama has claimed.

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