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Watchdog report stokes US minimum wage debate

Update: February, 19/2014 - 10:41

WASHINGTON – President Barack Obama's plans to raise the minimum wage could lift 900,000 people above the poverty line but may cost half a million jobs, a congressional watchdog has said.

The non-partisan Congressional Budget Office report on Tuesday offered ammunition for both the White House and Republicans in what is likely to be a tense debate ahead of mid-term congressional elections in November.

Obama unveiled a proposal to raise the federal minimum wage from $7.25 to $10.10 an hour in his State of the Union address last month as he set about closing income disparity – an increasingly important theme in US politics.

The CBO survey said that, if implemented, which would take until the second half of 2016, the "$10.10 option would reduce total employment by about 500,000 workers, or 0.3 per cent."

Republicans have long argued that raising the minimum wage would hurt the economy and employment as it would prompt small businesses to tighten belts and lay off some workers.

But the report also found that 16.5 million workers would have higher incomes in the second half of 2016 in a boost to the economy and personal living standards.

The report estimated that real incomes would rise by $5 billion for families currently living under the poverty line, lifting about 900,000 people above it. The White House, while highlighting positive aspects of the report, disputed the idea that raising the minimum wage could cost any jobs at all.

"The report very much does make the case for a policy that benefits more than 16.5 million workers, reduces poverty, raises incomes," said Jason Furman, chairman of the Council of Economic Advisors.

But he said that calculations that 500,000 jobs could be lost if the minimum wage rose to $10.10 "do not reflect the overall consensus view of economists who have said that the minimum wage would have little or no impact on employment."

Republicans quickly seized on the report to bolster claims that raising the federal minimum wage could be a job killer.

"This report confirms what we've long known," said Brendan Buck, spokesman for John Boehner, the Republican speaker of the House of Representatives. "While helping some, mandating higher wages has real costs, including fewer people working."

The top Republican in the Senate, Mitch McConnell said Washington should be helping Americans find jobs, not releasing "poll-tested proposals that destroy them."

It was not the first time in recent days that the White House has been forced to hit back at findings in a CBO report.

On February 4, officials disputed claims that Obama's health reform law would reduce the total number of hours worked by between one and two per cent during the period from 2017 to 2024.

Republicans quickly claimed that meant there would be up to 2.5 million fewer jobs in the economy. AFP

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