US minimum wage hike will cut employment

US Congress’ non-partisan budget office (CBO) says US minimum wage hike from US$7.25 to US$10.10 will have a tangled effect on the labor market.

US Congress’ non-partisan budget office (CBO) says US minimum wage hike from US$7.25 to US$10.10 will have a tangled effect on the labor market.

WASHINGTON - The U.S. minimum wage rise from US$7.25 to US$10.10 will increase earnings for more than 16.5 million people by 2016, but will also cut employment by roughly 500,000 workers, Congress’ non-partisan budget office (CBO) said on Tuesday.

U.S. President Barack Obama signed an executive order last Wednesday to raise the minimum wage for federal contract workers. According to the Economic Policy Institute, an increase to $10.10 would either directly or indirectly raise the wages of 27.8 million workers. The unemployment rate in the US currently sits at 6.6 percent.

“The growing economy should reward hard-working people,” Obama said, “ It's not going to depress the economy, it'll boost the economy.”

The CBO found that lifting the federal minimum wage would have a tangled effect on the labor market, acting both as a benefit and a problem for businesses and workers.

The report said that as a result of the minimum wage increase, there will be 900,000 fewer people living below the federal poverty line.

Republicans contended that jobs will be lost due to the policy, while Democrats asserted it will help ease poverty.

However, economists concede that both might be right.

The minimum wage rise will result in winners and losers among the low-wage workers it will target, CBO's report said. “Some businesses, squeezed between increased costs and the inability to raise prices or sell more goods, will hire fewer low-wage workers because of the higher minimum wage.”

The report added that businesses facing higher labor costs will raise prices, passing those higher costs onto their customers. This will lead to customers cutting back on their purchases, which in turn will result in businesses needing fewer workers.

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