CBO says raising minimum wage to $15 would reduce poverty but increase the deficit and cost jobs

Raising the federal hourly minimum wage to $15 would reduce poverty — but would also cut employment by 1.4 million workers and increase the federal deficit by $54 billion over a decade, according to a Congressional Budget Office report released Monday.

The proposed hike, which would take full effect by 2025, would increase worker pay by $333 billion, giving a boost to some 17 million workers whose wages would otherwise be below $15, as well as many of the 10 million workers whose wages would otherwise be slightly above that level.

The move would also reduce the number of people in poverty by 900,000 and result in lower spending on food stamps and child nutrition programs. However, spending on Medicaid and unemployment benefits would increase because of higher enrollment by those who lose their jobs, the CBO said of the Raise the Wage Act, introduced last month by a group of Democratic lawmakers.

Also, spending on Medicaid and Medicare would increase because of higher labor costs, since many home health and nursing care workers make less than $15 an hour.

Supporters of the minimum wage boost, including Vermont Sen. Bernie Sanders, quickly jumped on the CBO’s findings that it would reduce employment. They argue that the agency’s methodology was flawed.

New push to increase the minimum wage

The battle over raising the minimum wage, a longtime Democratic goal, was reignited last month when President Joe Biden included it in his $1.9 trillion coronavirus relief package. The minimum wage has been $7.25 since 2009.

However, the measure has already run into resistance on Capitol Hill, including from some Democrats, such as West Virginia Sen. Joe Manchin, who favors a smaller hike.

Democratic leaders are fast-tracking the passage of Biden’s pandemic relief package through a legislative process known as reconciliation, which only requires a majority of votes. However, the party could not afford to lose the support of any member, assuming no Republican senators vote for it.

Biden conceded in an interview with “CBS Evening News with Norah O’Donnell” that he does not believe he will be able to raise the minimum wage due to the Senate’s rules.

“I put it in, but I don’t think it’s going to survive,” Biden said in excerpts of an interview that aired Friday.

However, Sanders, chair of the Senate Budget Committee and a fierce advocate of the increase, took issue Monday with the CBO report, pointing to the agency’s analysis two years ago that concluded a wage hike would increase the deficit by less than $1 million over a decade. He also referenced other studies that found that raising the wage would significantly reduce the deficit.

The senator doubled down on his intention to include the provision in the relief package, saying the CBO report backs his contention that increasing the minimum wage would have an impact on the budget and could be included in a reconciliation bill.

He told CNN’s Jake Tapper on Sunday that a “room full of lawyers” is working to make the case that a minimum wage increase conforms to those rules.

“I can tell you as chairman of the (Senate Budget Committee), we have a room full of lawyers working as hard as we can to make the case to the parliamentarian that, in fact, raising the minimum wage will have significant budget implications and, in fact, should be consistent with reconciliation rules,” Sanders told Tapper on “State of the Union.”

Higher wages vs lower employment

The CBO report resurfaced longstanding arguments between Democrats and worker advocates on one side, who say that paying people a higher wage will have a positive impact on their lives, the federal budget and the economy, and Republicans and business owners on the other side, who warn that such a move will cost jobs.

One recent study by the National Bureau of Economic Research concluded that 80% of economic research over the last 30 years found there are job losses associated with a higher minimum wage. The evidence of a negative impact is stronger for teens and young adults, as well as the less-educated.

A wage increase this large would have a greater effect than the modest increases looked at by those past studies, said David Neumark, an economics professor at the University of California Irvine and one of the recent report’s authors.

“It’s going to get proportionately worse as it goes higher and higher because you affect a greater share of workers,” said Neumark, who has long written about the negative impact that raising the minimum wage would have on employment.

He also noted that in some low-wage states, more than half of workers now make less than $15 an hour.

But proponents argue that better-quality studies tend to show that increases in the minimum wage do not hurt employment.

“We believe that the CBO’s assumptions on the scale of job loss are just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate,” said a team of experts from the left-leaning Economic Policy Institute.

The CBO did not properly weight the higher-quality studies in its analysis, said Heidi Shierholz, senior economist at the institute.

Supporters also highlighted the CBO’s findings that raising the minimum wage would help many lower-income Americans, many of whom are essential workers, people of color and women.

“Today’s report makes clear what we’ve known all along: Raising the minimum wage — which hasn’t increased since 2009 — to $15 an hour isn’t just the right thing to do, it’s good policy that will give a raise to up to 27 million workers and lift almost one million people out of poverty,” said Washington Sen. Patty Murray, a Democrat and one of the co-sponsors of the bill.

New minimum wage push in Congress

A coalition of Democratic lawmakers, including Sanders, last month introduced the Raise the Wage Act, which calls for gradually increasing the hourly wage in increments until it hits $15 in 2025.

After that, it would be indexed to median wage growth — a move meant to guarantee wages keep up with inflation without needing new legislation.

Sanders has been a longtime proponent of boosting the wage, saying no full-time worker in the US should be unable to afford to feed their families or pay the rent. He has slammed companies for paying wages that are so low that their workers need federal assistance, including food stamps.

The so-called Fight for $15 dates back to 2012, when fast-food workers walked off the job in New York City to call attention to their battle for higher pay.

Backed heavily by unions and consumer advocates, the effort has succeeded in eight states and more than 40 cities, which have adopted laws to raise their minimum wage to $15.

A growing number of companies, including Amazon and Target, agreed to lift their minimum wage to that level in recent years as unemployment fell to historic lows — before the pandemic struck.