CBO Analysis: $15 Minimum Wage Would Boost Incomes, Trigger Job Cuts

Roy Maurer By Roy Maurer July 10, 2019
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​Raising the federal minimum wage to $15 per hour would raise pay for 27 million workers but also lead to over 1 million job losses, according to Congressional Budget Office (CBO) projections.

The nonpartisan CBO provides budget and economic information to Congress. It was analyzing the projected impact of the Raise the Wage Act, legislation scheduled for a vote in the House of Representatives this month that would phase in the $15-an-hour wage by 2024. The federal minimum wage of $7.25 per hour has not changed since 2009, though many states and localities have set their minimum wage above that level.

The bill, introduced by Rep. Bobby Scott, D-Va., would index future increases to inflation and would eliminate lower minimum wages permitted for tipped workers, workers with disabilities and workers younger than 20.

Opponents of the proposal argue that it would be too expensive for small-business owners and hurt the very workers it's supposed to help. Others say a nationwide rate is not realistic, given the wide cost-of-living disparities across the United States.

In an attempt to address those concerns, Rep. Terri Sewell, D-Ala., is working on a proposal that would introduce a tax credit for small businesses to help them absorb the increase to the minimum wage. Democrats do not seem to be on board with the idea.

[SHRM members-only toolkit: Managing Pay Equity]

Mixed Verdict

Increasing the federal minimum wage would have two principal effects on low-wage workers, according to the CBO: "For most low-wage workers, earnings and family income would increase, which would lift some families out of poverty. But other low-wage workers would become jobless, and their family income would fall—in some cases, below the poverty threshold."

The CBO speculated that in an average week in 2025, 1.3 million workers (a median estimate) would be jobless due to the $15 minimum wage hike. Overall resulting job losses would range between "about zero" and 3.7 million, the economists found.

In that same average week in 2025, the pay raise would boost pay for 17 million people who would otherwise be earning less than $15 an hour, and for another 10 million workers who would be earning slightly more than $15 per hour. The pay increase would also move the annual income of 1.3 million people above the poverty level.

That last finding squares with a recent study from economists at the University of California Berkeley, who found that a $15 minimum wage would bring down household poverty.

The CBO also found that a $15 minimum wage would reduce business income and raise prices for consumers.

Raising the federal minimum wage to $12 and $10 per hour by 2025 were also analyzed. Both options were found to boost wages, but also increase joblessness, reduce business income and raise prices, although the effects would not be as drastic.

Divided Reactions

As expected, proponents and critics of raising the minimum wage sought to highlight different findings from the report.

"What the report makes clear is that the benefits vastly outweigh any cost," Scott said.

His counterpart on the House Education and Labor Committee, Rep. Virginia Foxx, R-N.C., had the opposite takeaway. "It is no surprise that the nonpartisan CBO found it would have highly detrimental impacts on workers and the U.S. economy," she said. "That is unacceptable—one job lost is one too many."

Heidi Shierholz, director of policy at the Economic Policy Institute in Washington, D.C., and the chief economist at the Department of Labor during the Obama administration, stressed the positive outcomes of a wage increase to low-wage workers.

"CBO finds that the overwhelming share of low-wage workers would benefit from a $15 minimum wage and that as a group, low-wage workers would be unambiguously better off," she said. She also argued that the CBO's findings on job losses were overstated. "Policymakers must be skeptical of their assessment of the employment impact, given that other careful reviews of the minimum wage literature have shown that the average study finds small-to-no employment effects of minimum wage increases" in states and localities that have boosted their rates.

Shierholz pointed out that an employment decline because of a minimum wage increase doesn't necessarily mean affected workers are worse off. "For a wide variety of reasons, a sizeable share of low-wage workers routinely cycle in and out of employment. Each quarter, more than 20 percent of the lowest-wage workers leave or start a job. This means that even if employment does decline as CBO predicts, workers who work less can still come out ahead because they earn much more when they are working."

On the other side of the debate, Alfredo Ortiz, president and CEO of the Job Creators Network, an Atlanta-based small-business coalition, said that the report "confirms what we already know to be true—broadly raising the minimum wage to $15 an hour will reduce employment opportunities and is bad for business. The consequences will be especially brutal for small businesses, which already operate within razor-thin budget margins."

Douglas Holtz-Eakin, an economist, former director of the CBO and president of the American Action Forum, a Washington, D.C.-based policy and research group, said there was nothing surprising about the CBO analysis. "The basic mechanisms in play are by now well understood," he said. "The rising minimum wage will increase pay for those minimum-wage workers who remain employed, as well as for those who would likely see a raise to keep the pay scales in the right order. These pay hikes will come at the expense of those workers who will not be employed, the profits of businesses and the higher prices that consumers must pay."

He said raising the federal minimum wage is not an effective anti-poverty program because many of those earning the federal minimum wage are living in households well above the poverty line.

"Some 40 percent of low-wage workers are in family households with income three times the poverty level or more," he said.

Higher Wages, Happier Employees

Michael Lastoria, co-founder and CEO of &pizza, a popular pizzeria chain on the East Coast, strongly disagrees with the argument that raising the minimum wage hurts employers and credits a large part of his company's success to paying "well above" the minimum wage.

"Research has refuted that over and over again—as has my personal experience running a business," he said. "Higher wages have led to greater productivity, increased employee dedication and retention, and our team members finding a sense of pride in their work."

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