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CBO reports on impact of raising the minimum wage

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Yesterday the non partisan Congressional Budget Office (CBO), released a report on The Effects of Minimum-Wage Increase on Employment and Family Income with mixed results. The report addresses the impact of raising the Federal minimum wage from $7.25 per hour to $10.10/hr by 2016.

The CBO report projects that raising the minimum wage incrementally to $10.10 with an inflation adjustment has both a positive and negative impact on the economy. On the positive side it is estimated that 16.5 million workers would see higher earnings the second half of 2016. Those higher earnings in turn will increase consumer spending and the need for goods and services. Payroll tax revenues would increase and the demand for government subsidies would be reduced. It is expected that many low wage families would be lifted above the poverty line.

On the negative side increasing the minimum wage to $10.10 per hour could cost the economy 500,000 jobs. When the Department of Labor Bureau of Labor Statistics reported the economy added 113,000 jobs in January the loss of half a million jobs would increase unemployment. With that many jobs lost so quickly government assistance would spike. The positive side income increase would increase inflation at the same time when unemployment would be rising again could send the send the economy tumbling backwards.

Recently President Obama announced he was going to raise the minimum wage to $10.10 hours for workers on Federal contracts. The President called on Congress to follow his example and increase the Federal minimum wage for all workers to $10.10 per hour. There are 21 states have a minimum wage higher than the current Federal minimum wage but all are below the $10.10/hr. California has approved state legislation to move the minimum wage to $10 per hour in January 2016 while a only few other states are considering legislating an increase the state minimum wage.

The first minimum wage was established in 1938 by the Fair Labor Standards Act (FLSA) and impacts about 66% of the workers in the United States. To increase the minimum wage takes Congress to change but states can have a higher minimum wage than the Federal minimum wage. Congress has not shown much of an interest in raising the Federal minimum wage.

The National Employment Law Project (NELP) issued a brief statement disagreeing with the CBO’s report on the impact of an increased minimum wage. NELP points to small business as well as 70% of Americans who favor Congress raising the Federal minimum wage. While Gallup just released poll results this week where one in four people are concerned about jobs and employment.

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