Raising minimum wage to $ 15 would cost 1.4 million jobs, says CBO

Raising the federal minimum wage to $ 15 an hour, as proposed by President Joe Biden, would cost 1.4 million jobs over the next four years while lifting 900,000 people out of poverty, according to a report from the Congressional Budget Office Monday.

The impact on employment roles is slightly higher than the estimate of 1.3 million jobs from a 2019 report from CBO, an agency that provides budget analysis to Congress.

The number has been disputed by employment advocates who cite the benefits of the increase and say businesses will be able to bear the costs.

Biden has acknowledged that the plan to phase in the new federal wage floor is unlikely to get through the $ 1.9 trillion spending plan he is submitting to Congress, although he remains determined to increase.

The CBO report estimates that the reduction in employment would occur by 2025 and would occur as employers cut payrolls to offset rising costs.

Along with the reduction in jobs, the federal budget deficit would increase by $ 54 billion over the next 10 years, a fairly negligible level given that the fiscal year 2020 deficit stood at over $ 3 trillion. .

Compensation for all workers would increase by a net $ 333 billion, “an increase in the cost of labor for businesses considerably larger than the net effect on the budget deficit during this period”, indicates the CBO report.

In the 2019 estimate, the agency said total family income would decline slightly on the net.

“Higher wages would increase the cost for employers to produce goods and services,” the report says.

“Employers would pass some of these increased costs on to consumers in the form of higher prices, and these higher prices, in turn, would lead consumers to buy less goods and services,” according to the report. “Employers would therefore produce fewer goods and services and therefore tend to reduce the employment of workers at all wage levels.”

There is considerable disagreement over the negative effects of increasing the minimum wage, which has remained at $ 7.25 since 2009.

“Numerous studies have shown that higher minimum wages reduce poverty, and a census study found that wage gains for affected workers continue to grow in the years following the minimum wage increase,” according to a note by Goldman Sachs.

The firm added that most studies “find only slightly negative effects of minimum wage increases on the employment of low-wage workers.”

Raising the minimum wage would result in increased spending on Medicaid for those who lost their jobs due to higher wages, while spending on Social Security would also increase due to higher wages.

Conversely, the OBC sees less spending on food stamps and infant nutrition programs due to increases for low-income people.

However, those at the bottom of the ladder would also feel some impact.

The report expects that of the 1.4 million workers displaced by rising wages, half will disappear completely from the workforce by 2025.

“The young and the less educated would represent a disproportionate share of these job cuts,” the report said.

Advocates for employment cited multiple benefits to increasing the minimum wage, ranging from raising the standard of living of low-income people to providing health benefits.

Raising minimum wage levels “would disproportionately increase the incomes of families at the bottom of the income distribution and significantly reduce the number of poor families,” the Institute for Economic Policy said in a recent article.

Goldman has estimated the chances of a minimum wage of $ 15 going “low” with the most likely scenario something in the $ 10-11 range with phased implementation.