WASHINGTON — Increasing the federal minimum wage to $10.10 an hour would cause the loss of about 500,000 jobs but would boost earnings for about 16.5 million low-wage workers, according to a report by the Congressional Budget Office.
The report, released Tuesday, stoked the long-simmering debate in Congress over hiking the federal minimum wage above its current $7.25 an hour.
President Obama and many congressional Democrats want to raise the minimum wage to help reduce income inequality. Republicans argue the move would hurt low-wage workers because employers would cut jobs in the face of higher wage costs.
The new findings by the nonpartisan CBO land in the middle of that debate. The CBO said that most low-wage workers would receive higher pay that would “increase their family’s income,” and some of those families would see their income “rise above the federal poverty threshold.”
“But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly,” the CBO said.
A $10.10 minimum wage would result in 900,000 more people rising above the poverty threshold. The CBO projected that in 2016, the poverty threshold, in 2013 dollars, will be about $24,100 for a family of four.
The new findings Tuesday set off a flurry of statements and analyses. People on both sides of the issue quickly pointed to evidence in the report to back up their arguments.
“This report confirms what we’ve long known: While helping some, mandating higher wages has real costs, including fewer people working. With unemployment Americans’ top concern, our focus should be creating — not destroying — jobs for those who need them most,” said Brendan Buck, a spokesman for House Speaker John A. Boehner (R-Ohio).
The White House embraced the report’s finding on poverty and wages but disputed the conclusions on reduced employment.
When economists consider factors associated with higher wages — such as improved productivity, lower rates of absenteeism and increased retention — many find nearly no negative effect on employment, Jason Furman, chairman of Council of Economic Advisors, told reporters.
The report “goes outside the consensus view when it comes to the impact of the minimum wage on employment,” Furman argued.
Still, he acknowledged, “there is some difference of opinion about how to read the literature on the employment effects of the minimum wage, but that’s a difference of opinion that I think a lot of economists would have as well.”
The CBO analyzed two options for raising the minimum wage.
The first was an increase to $10.10 an hour by July 1, 2016, in three steps, starting this summer, and automatically increasing it in the future based on inflation.
The second option would increase the minimum wage to $9 an hour by July 1, 2016, in two steps, starting next year and would not be indexed for inflation. Obama had initially backed a increase to $9, but later joined with Democrats behind the higher raise.
The second option would have less effect, causing a loss of about 100,000 jobs in the second half of 2016 and raising the earnings of about 7.6 million Americans earning less than $9 an hour, the CBO said.
Last week, Obama signed an executive order setting the higher minimum wage for federal contract workers.
The CBO said the $10.10-an-hour option “would have substantially larger effects on employment and income than the $9 option.” The higher minimum wage would affect more workers and give them a bigger raise.
The estimated effects of both options were for the second half of 2016, after the higher wages were fully in place.
That’s also when the CBO predicted the 500,000 drop in employment, a 0.3% drop in total employment and roughly 1.5% of the estimated 33 million low-wage workers.
The reductions would disproportionately affect teenagers, the report found, “because they tend to have lower wages and because their employment typically responds more sharply to changes in the minimum wage.”