Do the Benefits Of Raising The Minimum Wage Outweigh The Costs?

The Congressional Budget Office (CBO) just released a report analyzing the effects of a minimum-wage  increase on employment and family income.  This report is likely to provide arguments for both sides of the minimum wage debate, as it concludes that raising the minimum wage to $10.10/hour by 2016 would raise incomes for 16.5 million workers and move 900,000 people out of poverty, but would cost about 500,000 workers their jobs.

More specifically, according to the CBO, the benefits of raising the minimum wage include:

  • 16.5 million people earning less than $10.10 would get a raise. And those already getting $10.10 probably would get raises, too, from a spillover effect.
  • Real income would rise overall by $2 billion.
  • Higher wages would boost consumption and stimulate economic growth.
  • About 900,000 people would be lifted out of poverty.

The costs of a higher minimum wage:

  • The CBO estimates that 500,000 people would lose their jobs as employers adjust to higher labor costs.
  • The federal budget would suffer a little as the government raises wages for hourly employees.
  • Consumers and the federal government could face rising prices for goods and services as employers pass along some of their increased labor costs.

Over 600 economists have signed a letter in support of raising the minimum wage to $10.10, arguing that "In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front."

As reported by the Pew Research Center, the minimum wage has so far not been enough to lift most people out of poverty: "in 1968, when the minimum wage was at its peak value, one minimum-wage job could keep three people out of poverty. Today’s minimum, which works out to $15,080 a year (assuming a full 40-hour work week), will lift a single person out of poverty. However, it’s nearly $1,000 below the poverty threshold for a one-adult, one-child household."

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Frederique Laubepin

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