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Administration Says Minimum Wage Increase Could Cost 850,000 Jobs

May 19, 1988

WASHINGTON (AP) _ The White House has entered the congressional fray over a proposed increase in the minimum wage, arguing that it could cost 850,000 jobs while adding to the budget deficit.

Beryl W. Sprinkel, chairman of the President’s Council of Economic Advisors, says even the smallest increase under consideration, raising the minimum wage from $3.35 to $4.65 per hour by 1992, would cost 600,000 jobs.

Those losses ″would be concentrated among younger, less skilled and minority workers,″ he said.

A chart supplied by Sprinkel indicates an increase in the minimum wage to $5.05 an hour over four years would eliminate 850,000 jobs by 1992.

Legislation to raise the minimum wage $4.65 by 1991 was introduced last year, but the House Education and Labor Committee raised the figure to $5.05 per hour over four years. The original bill proposed by Sen. Edward M. Kennedy, D-Mass., is pending in the Senate Labor and Human Resources Committee, which Kennedy chairs.

″Increasing the minimum wage would have adverse effects on employment, unemployment, economic output and on the budget deficit,″ Sprinkel said in a letter to Rep. Thomas E. Petri, R-Wisc., a committee member.

″Increasing the federal minimum wage would do little to help the working poor; under 20 percent of minimum wage workers are poor and many would lose employment,″ Sprinkel wrote in the letter, released Wednesday. ″The direct impact on the budget deficit would be about $2 billion, due to both increased budget outlays and reduced revenues.″

He also said consumers would have to absorb roughly $13 billion more in higher costs for the products that minimum-wage workers help to produce.

Democrats have argued that a minimum wage would have a minimal effect on unemployment and the economy, and Kennedy denounced Sprinkel’s findings in a statement released Wednesday night.

″That’s preposterous,″ he said. ″The president could have obtained a more reliable estimate of the job effect from Joan Quigley,″ the San Francisco astrologer contacted by Nancy Reagan for advice..

Petri sought Sprinkel’s assessment of the minimum wage legislation after charging that the Democratic leadership had attempted to suppress a Congressional Budget Office report that said an increase to $5.05 an hour will cost up to 500,000 jobs.

The draft study was sent to House labor Chairman Augustus Hawkins, D- Calif., who returned it to the CBO, asking only the costs of the bill and not its economic impact.

House Republicans charged that the CBO ″deliberately censored information pertinent to consideration of the bill or was specifically instructed to do so and followed that instruction,″ according to a letter from House Minority Leader Robert Michel, D-Ill.

Sprinkel said an earned income tax credit (EITC), an alternative proposed by Petri but rejected by the House labor committee, would target assistance to families of the working poor more directly than an increase in the minimum wage.

Petri plans to place his proposal for a wage supplement which would base the credit on family size before the full House when the legislation reaches the floor.

″Without the same adverse effects on the economy, and with comparable or even smaller budgetary cost than the proposed increased in the minimum wage, an expanded EITC would target increased income to working heads of larger families below or close to poverty level,″ said Sprinkel.

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