CBO: $10.10 Minimum Wage Hike Would Mean Fewer Workers

New CBO report presents a tough decision for lawmakers on raising the minimum wage.

President Barack Obama arrives on stage to sign an executive order raising the federal minimum wage to $10.10 on new federal contracts Feb. 12, 2014, in Washington, D.C.

Raising the federal minimum wage to $10.10 nationwide could lead to half a million fewer workers, a new CBO report says.

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Raising the country's minimum wage could boost the incomes of millions of Americans, but it would simultaneously mean hundreds of thousands of fewer workers, according to a new analysis from the Congressional Budget Office.

The nonpartisan agency on Tuesday released an analysis of the economic effects of raising the minimum wage to $10.10, a level backed by President Barack Obama and many Democrats. According to the CBO, a graduated boost in the minimum wage to $10.10 by 2016 would lead to an estimated decline in employment of 500,000 workers by the second half of that year. That figure is the central estimate in a range of possible outcomes, but it is more likely than not that the law would lead to less employment. According to the report, there is a 70 percent chance that the law would lead to anywhere from a slight decline in employment to a decline of 1 million workers.

[READ: Obama's Minimum Wage Hike, Put Into Perspective]

A $9 minimum wage would have similar but smaller effects, leading to anywhere from a slight increase in employment to 200,000 fewer workers, with a central estimate of 100,000 fewer workers.

However, the law also would improve pay for a large swath of Americans. A $10.10 minimum wage would lead to higher weekly earnings for 16.5 million Americans and would mean 900,000 fewer people below the poverty threshold. A $9 wage would boost earnings for 7.6 million people and mean 300,000 fewer in poverty.

Currently, a worker making the federal minimum wage of $7.25 and working 40 hours per week would earn only $15,080 in the course of a year. A $10.10 minimum wage would boost that to just more than $21,000. Currently, the poverty threshold for a family of four with two children is $23,624.

Raising the country’s minimum wage could boost the incomes of millions of Americans, but it would simultaneously mean hundreds of thousands of fewer workers, according to a new analysis from the Congressional Budget Office.


The numbers may mean a quandary for lawmakers as they consider raising the minimum wage: Is boosting pay for millions of Americans worth potentially threatening hundreds of thousands of jobs, especially when the unemployment rate remains elevated?

However, some proponents of a higher minimum wage argue that raising the minimum wage won’t create a choice between higher wages and job creation.

[ALSO: In Some Places, a High Minimum Wage Is Actually Pretty Low]

“Today’s Congressional Budget Office report is an outlier that flies in the face of overwhelming empirical evidence,” Christine Owens, executive director of the National Employment Law Project, said in a statement. “The effect of raising the minimum wage is one of the most thoroughly studied topics in modern economics, and the vast majority of the more than 1,000 estimates contained in studies dating back to 1972 show no significant adverse effects on employment.”

One December study from the Economic Policy Institute, a left-leaning think tank, found that a minimum wage hike to $10.10 would result in a net gain of 85,000 new jobs by 2016.

Jason Furman, chairman of the White House Council of Economic Advisers, likewise raised doubts in a blog post about the report, saying the CBO's estimates "do not reflect the overall consensus view of economists which is that raising the minimum wage has little or no negative effect on employment." He also pointed to a letter signed by more than 600 economists who agreed that raising the minimum wage would have "little or no effect" on the employment of minimum wage workers.

The top congressional Republican, meanwhile, is using the CBO’s findings to bolster opposition to a minimum wage hike.

“This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working,” Brendan Buck, spokesman for Speaker of the House John Boehner, R-Ohio, said in a statement.

[MORE: Democrats' Secret Weapon in 2014 — Minimum Wage]

One alternative to raising the minimum wage that some conservatives promote is expanding the earned income tax credit, which benefits lower-income Americans. House Budget Committee Chairman Paul Ryan, R-Wisc., earlier this year argued for an expansion of the program in place of a higher minimum wage. The CBO report included some analysis of an EITC expansion and suggested it would be a more efficient policy for targeting lower-wage Americans. While a higher minimum wage could affect families regardless of income, an increased EITC “would go almost entirely to low-income families,” the report said.

While lawmakers and even economists remain divided on the minimum wage, Americans are largely in favor of raising it. In November, Gallup found that 76 percent of Americans said they would vote to raise the minimum wage to $9 per hour, with only 22 percent saying they would vote against it. However, entrepreneurs are more divided. Small business owners were nearly evenly split in a November Gallup poll on whether they’d approve of a minimum wage hike to $9.50, with 47 percent approving and 50 percent disapproving
.