Plan to Increase Minimum Wage may Eliminate 500,000 Jobs

President Obama recently proposed a plan to increase the federal minimum wage.  While the plan would increase the income for a number of workers, a report by the Congressional Budget Office indicates the proposed increase would result in the elimination of thousands of jobs.

Under the plan proposed by President Obama and Democrat Senators, the federal minimum wage would increase from the current amount of $7.25 per hour to $10.10 per hour by 2016.  Experts estimate that just over 16 million workers in the United States currently earn the minimum wage.  Therefore, many of these workers would see an overall increase in their income, which would also increase income tax revenue for states as well as the federal government.

However, the proposal was met with criticism on Tuesday when the Congressional Budget Office (CBO) released a report indicating the proposed increase in minimum wage would likely force employers to eliminate approximately 500,000 jobs, but that number could be as high as 1 million jobs.

The CBO is a bi-partisan agency tasked with providing independent analysis of policy decisions to Congress, to help ensure lawmakers are well informed before passing changes.  According to the CBO’s report, an increase in the minimum wage would obviously force employers to pay minimum wage earners a higher wage.  However, where an employer’s budget for payroll remains flat, the only way for the employer to stay within their payroll budget is to reduce the number of hours worked by employees or eliminate certain positions entirely.

The CBO report indicated a majority of the eliminated positions would likely be minimum wage earners or other low-income positions.  Therefore, a number of minimum wage earners lobbying for the increase to minimum wage in hopes of increase their income could instead find themselves out of a job entirely.

Lawmakers Respond to Implications of Minimum Wage Increase

Republican lawmakers reference the CBO’s report as further support in their opposition to an increase in the federal minimum wage.

“While helping some, mandating higher wages has real costs, including fewer people working,” noted a representative from the office of John Boehner, Ohio Republican and the Speaker of the House.  “With unemployment Americans’ top concern, our focus should be creating, not destroying, jobs for those who need them most.”

Jason Furman, the Chairman of the White House Council of Economic Advisors, responded to criticism based on the CBO’s report.

“[The] CBO’s estimate doesn’t reflect the overall consensus view of economists who say [the increase to the minimum wage] would have minimum or no impact on employment,” said Furman.  The CBO’s report is “essentially confirming the consensus” by highlighting how relatively few jobs would be eliminated, which would mean an overall increase in income for low-income families.

As with many proposals given the current party affiliation in the House and Senate, the chances of the measure passing are questionable.  Democrats, who overwhelmingly support the increase, have a majority in only the Senate, whereas Republicans who are opposed to the increase have a majority of representatives in only the House.  Therefore, it is unlikely that any form of minimum wage proposal would receive sufficient votes to pass the House.

Despite the long odds, the Senate is debating a version of the proposal authored by Senator Tom Harkin, Iowa Democrat.  The proposal would increase the minimum wage to $10.10 by 2016 and then require an annual adjustment to the minimum wage to track with inflation.

Connect with Mark on Google+

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.