A few weeks ago the Congressional Budget Office, which is responsible for the accounting and reporting associated with federal legislation and regulations, estimated that the Affordable Care Act would raise national budget deficits by $1 trillion and lead to the destruction of some 2.5 million jobs.
But the new health insurance mandates and the pressure they will put on America’s businesses aren’t the only challenges facing an already dwindling labor force.
Earlier this month President Obama raised the minimum wage for federal workers through an Executive Orders that will take effect on January 1, 2015. He promised to push through a similar mandate for the private sector. However, just because minimum wage workers in America will see a roughly $3 increase in their hourly pay doesn’t necessarily mean that they’ll be better off than today.
According to the CBO, the wage hike is going to do exactly the opposite of its intended purpose. Not only can we expect businesses to almost immediately raise prices on the goods and services they offer in order to offset the wage hikes, but it will end up costing the American economy even more jobs in the long run.
Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects. As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.
Congressional Budget Office: The Effect of a Minimum Wage Increase (PDF)
It’s not just about the job losses, however. The report also discusses how the wage increase itself will put many Americans who are currently making $7.25 an hour above the federal poverty threshold. This sounds great on paper, but given that prices for just about everything will inevitably rise, those people will be paying more for essential goods and services. Moreover, anyone whose income jumps above that poverty threshold will likely lose many of the government benefits they receive for being below the poverty line. They’ll see their health care costs go up because they will be making more money and they’ll also lose full or partial access to food stamps, rental assistance and other social services.
Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold.
But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.
While a recent poll suggests that the majority of Americans support a minimum wage hike, they more than likely haven’t gotten the whole story. In fact, the Obama administration’s response to the CBO’s report was to totally downplay the warnings.
In a blog post at WhiteHouse.gov, the White House Council of Economic Advisers cited Seven Nobel Prize Winners, eight former Presidents of the American Economic Association and over 600 other economists to support their claims that the wage hike would actually result in more job creation. They base this assessment on new “academic literature” which suggests that there will be no negative impact and that there will probably no job losses at all:
The bulk of academic studies, have concluded that the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent.
While most people would love to believe that simply forcing employers to pay people more money will fix the problem and increase the wealth of individual Americans, it’s notable that White House economic advisers and experts promoted the economic benefits of the Affordable Care Act in similar fashion.
The American people were told that they could keep their existing health care plans, that their rates would go down, and that all of their medical needs, including pre-existing conditions and specialty drug requirements, would be met.
Just months after the launch of the so-called Obamacare initiative, however, Americans are beginning to see the big picture. Rates have tripled, insurance plans for millions have been cancelled, children dependent on life saving care no longer have coverage for their pre-existing conditions, and the system itself may well detonate due to unmanageable costs before year’s end.
The same experts who told Americans that the Affordable Care Act would improve economic conditions and health care are now citing the very same economic panels to convince us that a wage increase will be beneficial to economic progress and income equality.
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