Kevin Glass | Feb 18, 2014
Don’t call it “job lock”: the Congressional Budget Office has evaluated two proposals to hike the minimum wage, and has found strong disincentive effects for employers to either hire new workers or to retain the workers they’ll have to pay more for. The CBO’s average prediction is that President Obama’s favored $10.10 minimum wage will lower employment by 500,000 workers – with a range of a “very slight decrease” to up to one million workers.
The CBO actually uses a Keynesian analytical framework, as they find that a smaller increase in the minimum wage would add jobs to the economy due to multiplier effects. But even in this framework, they find, President Obama’s $10.10 wage is extreme enough to be too much for Keynesianism, and would result in a large net loss of jobs.
More broadly, the CBO’s analysis predicts that these minimum wage hikes would have “trickle-up” effects, and that people higher up the income ladder – at six times the federal poverty rate, for example – would benefit even more than those at the lower end. And of course, those at the lowest end, the ones whose skills are only marginally attaching them to the labor force, would be sacrificed.
The CBO also predicts that the effects of a minimum wage hike would be passed on to consumers in the form of higher prices. In addition to laying off employees, businesses would raise prices across the board to compensate for these increased labor costs.
Here’s the CBO’s table summarizing their findings:
That’s not to say that the minimum wage hike proposals are without potential benefits. Indeed they are – for a select number of people at the federal minimum wage across the country, their incomes will certainly rise. The CBO also finds that people above the minimum wage would be helped less directly. But it’s important to weigh that against the effect that up to one million workers or more who are at the low end of the income scale would find themselves jobless directly because of President Obama’s minimum wage hike.Follow enlightenedlbrl