Minimum Wage Increase in US / The CBO’s estimates of the effects on employment and family income

Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.

What Options for Increasing the Minimum Wage Did CBO Examine?

For this report, CBO examined the effects on employment and family income of two options for increasing the federal minimum wage (see the figure below):

A “$10.10 option” would increase the federal minimum wage from its current rate of $7.25 per hour to $10.10 per hour in three steps—in 2014, 2015, and 2016. After reaching $10.10 in 2016, the minimum wage would be adjusted annually for inflation as measured by the consumer price index.

A “$9.00 option” would raise the federal minimum wage from $7.25 per hour to $9.00 per hour in two steps—in 2015 and 2016. After reaching $9.00 in 2016, the minimum wage would not be subsequently adjusted for inflation.

What Effects Would Those Options Have?

The $10.10 option would have substantially larger effects on employment and income than the $9.00 option would—because more workers would see their wages rise; the change in their wages would be greater; and, CBO expects, employment would be more responsive to a minimum-wage increase that was larger and was subsequently adjusted for inflation. The net effect of either option on the federal budget would probably be small.

Effects of the $10.10 Option on Employment and Income

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.

Many more low-wage workers would see an increase in their earnings. Of those workers who will earn up to $10.10 under current law, most—about 16.5 million, according to CBO’s estimates—would have higher earnings during an average week in the second half of 2016 if the $10.10 option was implemented. Some of the people earning slightly more than $10.10 would also have higher earnings under that option, for reasons discussed below. Further, a few higher-wage workers would owe their jobs and increased earnings to the heightened demand for goods and services that would result from the minimum-wage increase.

The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

Chosen excerpts by Job Market Monitor. Read the whole story at CBO | The Effects of a Minimum-Wage Increase on Employment and Family Income.

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