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Budget agency defends wage report after White House criticism

A man holds a pamphlet handed out by a recruiter while attending a job fair in New York, June 11, 2013. REUTERS/Lucas Jackson
A man holds a pamphlet handed out by a recruiter while attending a job fair in New York, June 11, 2013. REUTERS/Lucas Jackson

By David Lawder

WASHINGTON (Reuters) - The head of the Congress' budget agency on Wednesday defended its findings that President Barack Obama's proposed minimum wage increase would cause job losses, a day after the White House criticized the agency's methodology.

White House officials have taken issue with the Congressional Budget Office's conclusion that raising the minimum wage to $10.10 per hour would lead to a loss of about half a million jobs by late 2016.

The administration's criticisms of the non-partisan CBO were unusual, given the respect that the agency commands from both Republicans and Democrats as Washington's referee on budget and economic issues.

CBO director Doug Elmendorf pushed back against suggestions that the agency had not taken into account some research on the effects of raising the minimum wage.

"Our analysis is quite consistent with the latest thinking by economists," he told reporters at an event sponsored by the Christian Science Monitor.

The report, however, struck a nerve among Democrats, who are advocating a minimum wage of $10.10 - up from $7.25 now - along with allowing it to rise with inflation, as a winning issue for the party in congressional elections in November.

The report gave Republicans an avenue to attack this strategy, and they quickly issued statements claiming that the wage hike would "destroy" jobs. The report came just two weeks after a CBO budget analysis found that federal health insurance subsidies under Obama's signature health reform law would contribute to a reduction in workforce participation later this decade, increasing future deficits.

Obama administration officials were quick to dispute the CBO's employment findings in the minimum wage report, despite another finding more favorable to Democrats - that the wage hike would lift more than a million people out of poverty.

The rare criticism of the CBO continued on Wednesday, as top White House economic adviser Gene Sperling said the jobs finding was "an area where I'd say we respectfully disagree with the CBO."

Sperling told MSNBC's "Morning Joe" program that many economists have found no negative jobs impact from lifting wages.

"I think their mistake was not looking at the practical research that was done," Sperling said of the CBO.

600 ECONOMISTS, NO NUMBERS

On Tuesday, House Democratic Leader Nancy Pelosi said the report "contradicts" the findings of "hundreds of top economists, who predict that a maximum wage hike would actually stimulate the economy, raise demand and job growth, and provide help in job creation."

In part, she was referring to a letter signed in January by more than 600 economists endorsing the $10.10 minimum wage proposal. These economists, mainly academics, wrote "the weight of evidence" showed that "increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market."

While Elmendorf, a Harvard-trained economist, did not directly respond to Pelosi's criticism, he said: "Those economists don't put numbers to their words, so it's hard to know exactly what people meant by 'little to no effect.'"

He said CBO's findings were consistent with several recent studies that have analyzed a minimum wage increase to $9. This includes a University of Chicago survey of economists in which roughly equal numbers agreed and disagreed that a $9 minimum wage would make it "noticeably harder" for low-skilled workers to find jobs.

A minimum wage increase to $10.10 would affect more workers and be a larger relative to any other proposed wage increase previously studied.

He said this "means that employers will face a larger shock in their costs," and have more incentive to respond by reducing the size of their workforces.

"A balanced reading of the set of research studies in this area led us to conclude that an increase in the minimum wage would probably have a small negative effect on employment," said Elmendorf, first appointed to his post by Democratic congressional leaders in 2009 and reappointed in 2011 after Republicans took control of the house.

Under Elmendorf, who served in the 1990s as an economic adviser to former Democratic president Bill Clinton, the CBO has produced some reports viewed as favorable to Obama, finding in 2010 that the Affordable Care Act would actually reduce deficits over its first decade. It also concluded last year that a Democratic immigration reform bill would cut deficits by $900 billion over 20 years and significantly boost economic growth.

Elmendorf, who said his personal political views have no bearing on CBO research, ends his current four-year term at the agency in January 2015.

(Reporting By David Lawder; editing by Andrew Hay)

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