U.S. Minimum Wage Hike Would Kill Jobs But Alleviate Poverty

(Reuters) -

Raising the U.S. minimum wage would lead to the loss of about half a million jobs by late 2016 but lift almost a million Americans out of poverty, the Congressional Budget Office forecast in a report on Tuesday that reignited debate over one of President Obama’s top priorities this year.

Buoyed by polls showing 75% of Americans in favor of a minimum wage hike, Democrats advocate raising the minimum hourly wage to $10.10 from the current $7.25 in a move to boost the stagnant wages of millions of low-income workers.

The Obama administration challenged the CBO’s estimates on potential job losses, citing the findings of a large group of private economists who saw little or no negative impact from a minimum wage hike.

White House Council of Economic Advisers Chairman Jason Furman said CBO’s report failed to take into account that higher wages would make more workers more productive and save employers money through, for example, lower absenteeism in the workplace.

Republicans in Congress and allies in the business community have long argued that minimum wage hikes encourage employers to shed workers to help offset higher salaries.

They quickly seized on one of the findings in the CBO report: that raising the minimum wage in three annual steps to $10.10 an hour would result in about 500,000 jobs being lost by late 2016.

“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 of Representatives Speaker John Boehner, a Republican.

But Democrats also found something to tout in the report: a $10.10 minimum hourly wage would bring 900,000 people above the poverty threshold of $24,100 a year for a family of four.

House Democratic Leader Nancy Pelosi said that enacting the wage hike would put “more money in the pockets of millions of consumers, strengthening the economic security of working families, and closing the opportunity gap for those struggling most to make ends meet.”

The CBO also said increasing the hourly wage could reduce budget deficits by a small amount for several years, though it would then increase them slightly in later years.