What Happens When We Put More Money in Workers’ Pockets?

By Alicia Criado, Field Coordinator, Economic Policy Project

If we raise the minimum wage, workers will have more money in their pockets to spend, which would provide businesses with more customers.  And businesses with more customers need to hire more workers.  Everybody wins—business owners, workers, and especially our struggling economy.  However, thanks to a recent Congressional Budget Office (CBO) report, the debate is swirling around whether raising the minimum wage will actually create or eliminate jobs.

The bottom line is that the CBO got some things right, but it also got some things wrong.

Here is where they got it wrong.  The report contradicts the latest research that either predicts job creation or little to no job loss if we raise the minimum wage.  The CBO claims that once the minimum wage is fully increased to $10.10, total employment would be reduced by about 500,000 jobs in the second half of 2016.

Meanwhile, there is a vast pool of rigorous academic studies which demonstrate that raising the minimum wage has no discernable effect on employment levels.  The CBO’s estimates don’t match up with recent analysis that has the support of more than 600 economists, including seven Nobel laureates, who all agree that raising the minimum wage will both strengthen our economy and create approximately 85,000 new jobs.

However, the CBO report also affirms some positive news that advocates of increasing the minimum wage, like the National Council of La Raza, can agree with.  It asserts that 16.5 million workers who earn below $10.10 would see substantial income gains by putting an additional $31 billion in their pockets with virtually no budgetary costs.  This would help lift full-time workers out of poverty, reducing their need for public benefits and increasing their ability to afford basic necessities such as food, visits to the doctor, and home repairs.  This wage boost is particularly important for Latino workers who are employed in the economy’s fastest-growing jobs, many of which are low-paying and leave full-time workers unable to cover basic family needs like housing, food, and gas.  The failure of not providing workers with the income to spend on essential needs is one of the major factors contributing to rising Latino child poverty and income inequality.

Even assuming that the CBO is right with its estimate of a loss of 500,000 jobs, the fact remains that if we raise the minimum to $10.10, over 24 million workers, of whom approximately 24% are Latino, will see significantly increased wages.  The answer is crystal clear: when we put more money in workers’ pockets, the net positives far outweigh even the worst-case situation that the CBO predicts.