Government report says $15 minimum wage would cost 1.4 million jobs

WASHINGTON – A new government report offers fresh ammunition for both sides of the debate over raising the federal minimum wage to $15 per hour.

The report, released Monday by the nonpartisan Congressional Budget Office, concluded that boosting the minimum wage to $15 per hour would raise income for millions of Americans and lift 900,000 people out of poverty.

But by 2025, when the hourly rate would hit $15 under a proposal before Congress, some 1.4 million fewer Americans would be working, the report concludes.

That is because higher wages would increase the cost of producing goods and services and, in response, many employers would reduce their workforce or hire fewer employees, the report said.

The report is likely to further fuel the debate over whether the minimum wage should be raised as part of a package that President Joe Biden is asking Congress to approve to help Americans and businesses recover from the economic fallout of the coronavirus pandemic.

The left-leaning Economic Policy Institute, among other worker advocates, disputed some of the CBO’s findings, arguing there would be little to no effect on employment and the budget deficit would shrink rather than grow.

Meanwhile, the Employment Policies Institute, which is backed by the restaurant industry, says the report confirms that “a $15 minimum wage is a terrible idea.”

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Supporters of a $15 minimum wage argued the report strengthens the case for raising the hourly pay rate, which currently stands at $7.25 and hasn’t been raised since 2009.

“This nonpartisan report shows that increasing the minimum wage will act as a direct and targeted stimulus for struggling workers and their families," said Rep. Bobby Scott said, D-Va., chairman of the House Education and Labor Committee.

At the White House, press secretary Jen Psaki said Biden remains “firmly committed” to raising the minimum wage to $15 per hour.

“He believes any American who is working a full-time job trying to make ends meet should not be at the poverty level, and it's important to him that the minimum wage is raised,” Psaki said.

Some bipartisan concern over raising the minimum wage

Biden advocated for raising the minimum wage during last year’s presidential campaign and has proposed boosting the hourly rate to $15 as part of his COVID-19-relief package.

Congressional Republicans and others, however, have raised concerns about raising the minimum wage. Sen. Joe Manchin, D-W.Va., a crucial swing vote in the Senate, also has said he opposes a $15 minimum wage, raising doubts about whether it can be increased through Biden's COVID-19-relief plan.

Biden conceded late last week that the minimum wage proposal is unlikely to survive as part of his COVID-19 package.

“Apparently, that’s not going to occur,” he said in an interview with "CBS Evening News With Norah O’Donnell."

But Biden also told O’Donnell he is prepared to negotiate a separate proposal to boost the minimum wage to $15 per hour.

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In its study, the Congressional Budget Office estimated that as many as 27 million Americans would see their pay increase if the minimum wage is raised to $15 an hour. Cumulative pay for those workers would jump by as much as $509 billion over the next 10 years, the report said.

But the pay increase also would mean increased labor costs for companies, the report said. Employers would pass some of those increased costs onto consumers in the form of higher prices, which could mean a decline in sales and services, the study said.

In the end, many companies will reduce their workforce or hire less, resulting in 1.4 million fewer jobs, the report said. Young, less educated people would account for a disproportionate share of the job reductions, the report concluded.

Raising the minimum wage to $15 per hour also would balloon the federal deficit to $54 billion over the next decade, the report said.

The CBO’s projection of a 1.4 million decline in employment is based on an average estimate of the studies it reviewed. But Heidi Shierholz, senior economist at the Economic Policy Institute, says the CBO gave equal weight to all the studies it assessed and should have placed more value on higher-quality studies.

“The weight of the evidence finds a small to no employment effect,” she told reporters on a conference call.

Michael Reich, a labor economist at the University of California, Berkeley, told reporters a minimum wage increase would have a small effect only on restaurant prices and it would not cause profits to fall.

How a raise could affect some government services

CBO also found the minimum wage measure would increase federal revenue because low-paid workers would earn more and pay more taxes but that would be more than offset by higher government costs. For example, federal spending on Medicaid would rise because workers providing health care services would earn more and people who lose their jobs because of the minimum wage hike would become eligible for Medicaid.

Social Security outlays would increase because a higher-paid workforce would receive more benefits on average. And people who lose their jobs would file for Social Security earlier than otherwise.

Other programs would become less costly, CBO says. Spending on food stamps and child nutrition programs would decline as a higher minimum wage reduces the number of low-income households receiving benefits and the average amount they receive.

Reich, however, says the CBO analysis doesn’t account for certain increased government revenue. Enticed by higher pay, many older Americans would work longer, saving $12.2 billion in Social Security fund costs.

Employer advocates, however, say the CBO study underscores their concerns.

“The nonpartisan CBO confirms what we already know from economic research and real-world experience,” says Michael Saltsman, managing director of the Employment Policies Institute, the restaurant industry-financed group. “A $15 minimum wage is a terrible idea that will put economic recovery further out of reach for thousands of employers and employees.”

Sen. Bernie Sanders, I-Vt., who supports a higher minimum wage, challenged the report’s findings.

“I find it hard to understand how the CBO concluded that raising the minimum wage would increase the deficit by $54 billion,” Sanders. “Two years ago, CBO concluded that a $15 minimum wage would increase the deficit by less than $1 million over 10 years.”

Frances Holmes of Fight for $15, an advocacy group that supports raising the minimum wage, said the report underscores the need to boost workers’ pay.

“Essential workers across the country are facing a crisis,” Holmes said. “We risk our lives at work every day during a pandemic because we can’t afford to miss a paycheck. … We don’t need excuses from our nation’s leaders. We need relief.”

Contributing: Nicholas Wu

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