Is the Congressional Budget Office Report on the Effects of Raising the Minimum Wage Worth the Paper it’s Written on?

Jessica SarterSmall Business


Findings by the Congressional Budget Office (CBO) are often cited by both political parties to advance their particular agendas, as the CBO is nonpartisan and generally offers something for each party to hang its political positions on.  Unfortunately, a careful reading of the CBO’s February 2014 report on the effects of raising the minimum wage to $10.10 an hour on income, employment and the economy is not only nonpartisan, but non-substantive.  In fact, it is, at best, guesswork.   On one hand, for example, the report estimates that raising the minimum wage could lead to the loss of 500,000 jobs by the year 2016.  Later, however, it cautions that this is merely an “estimate” and, in actuality, job losses could range from zero to one million.  (That’s quite a spread!)  Predictably, those opposed to raising the minimum wage went with the higher number.  The speculative assumptions underlying potential job losses should also be examined.  They are: (i) the increase in wages would result in higher costs to consumers resulting in lower sales and, therefore, lower production needs (see February 19 blog, which points out that a five-cent increase in the price of a Big Mac would cover over half the costs of McDonald’s higher salaries); and (ii) wage increases would incentivize employers to use machinery and technology to replace workers at a lower cost.  On the other hand – again – the report points out that increased wages could also lead to increased spending by higher-paid workers and create greater not lower demand and sales.  As far as technology replacing workers, this is happening already, with or without the minimum wage being raised.

While politicians may use the report to advance their own political agendas, one would hope that when and if they take action, they will rely on the factual data and not speculation.  The irrefutable facts that emerge from the CBO’s report are that raising the minimum wage to $10.10 an hour would: (i) increase the income of 16.5 million low-wage workers; and (ii) lift 900,000 American families out of poverty.