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Minimum wage hike a job-killer: U.S. budget office

The independent and nonpartisan Congressional Budget Office is making life less than easy for the White House these days.

First, there was the report that seemed to say President Barack Obama's health law would destroy two million jobs, but upon reflection, said that Obamacare would allow people to work less, so much so that the reduction in hours could add up to the equivalent of two million jobs.

One doubts the Republican Party's political ad writers will waste words on the distinction. Republicans' strategy to win control of the Senate in November's midterm elections is to paint Mr. Obama and Democratic policies as job killers. The CBO headline on Obamacare was manna from Heaven.

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The Republican gifts keep coming. Tuesday, the CBO released a study on legislation that would raise the U.S. minimum wage to $10.10 (U.S.) by 2016 from the current level of $7.25. The eye-catching conclusion: The proposal would destroy 500,000 jobs.

Republican tweeters couldn't believe their luck. "In review, White House's central jobs plan would kill jobs," Brendan Buck, a spokesman for House Speaker John Boehner, gleefully tweeted minutes after the CBO study was released. "Not hard," Mr. Buck added. "When you increase the cost of labour, there will be less demand for it, resulting in fewer jobs."

The CBO study certainly tips the balance in the political debate over the minimum wage. Most Republicans oppose a national minimum wage on the basis of gut instinct; now, they have a neutral and respected authority confirming their suspicions. Odds already were against Mr. Obama and Democratic leaders on winning a higher minimum wage this year. It's now a fool's bet.

Good politics and good policy all too rarely align. And taken as a whole, the CBO study validates the societal benefits of a higher minimum wage. It concludes that 16.5 million people would get a raise, 900,000 people would be lifted above the poverty line, and income adjusted for inflation would increase a net $2-billion.

The majority of jobs that would disappear are low-wage, low-skill positions that employers would replace through automation or by paying slightly higher wages to a smaller number of more productive workers. (The CBO concludes that higher wage employment would increase slightly.) That's bad news for the working poor who are pushed out of low-skill jobs. But that's an argument for a stronger social safety net, not one against a higher minimum wage.

The White House responded quickly to the CBO report. Jason Furman, the head of the president's Council of Economic Advisers, wrote a blog post and held a conference call with reporters.

Not surprisingly, Mr. Furman stressed the 16.5-million people who the CBO said would benefit from a higher minimum wage, or took exception to the CBO's conclusion that tens of thousands of jobs would be lost.

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"This is not a piece of original research on the impact of the minimum wage," Mr. Furman said. "A lot of economists would summarize it differently than the CBO has summarized it here." Later on the call, Mr. Furman added, "It is perfectly reasonable to think [raising the minimum wage] will have zero effect on employment."

Mr. Furman's confidence is based on empirical studies by some of the world's most respected labour economists that compare neighbouring jurisdictions where the minimum wage is raised in one and left unchanged in the other. Those real-world studies show little change in hiring patterns.

The CBO conclusions are based on theory and subject to a wide margin of error; the agency says the job losses could be as great as one million, or there could be little impact on hiring at all. There also is little appreciation given for more subtle, productivity-enhancing factors such as increased motivation and reduced absenteeism.

But none of that matters in the immediate political debate. Republicans will argue that the CBO has proved their point that Mr. Obama is a job killer. That could be a costly position in the long run: In effect, Republicans are arguing against improving the livelihoods of more than 16 million people.

But that's next year's debate. The immediate push for a federal minimum wage in the United States is all but over.

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