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CBO Offers Up Mixed Report On $15 Federal Minimum Wage

According to a new CBO report raising the minimum wage would cost 1.3 million jobs.

WASHINGTON—With a House vote on a bill to raise the federal minimum wage to $15 an hour by 2024 expected next week, the Congressional Budget Office projected that the measure would increase pay for up to 27 million Americans—but estimated that it would cost 1.3 million jobs.

The CBO study, “The Effects on Employment and Family Income of Increasing the Federal Minimum Wage,” released July 8, predicted that a $15 minimum would directly raise wages for 17 million workers who now make less, and indirectly push pay up for up to 10 million who now make slightly more than $15. This would bring 1.3 million people out of poverty, it said.

A lower increase, it added, would help significantly fewer people—up to 3.4 million at $10, $11.4 million at $12—with a minimal effect on employment.

The federal minimum wage, now $7.25, has not been increased since 2009, the longest such period since it was enacted in 1938. The House is expected to vote next week on the Raise the Wage Act, which would increase it to $8.55 immediately and bring it up to $15 in annual increments, says its lead sponsor, Rep. Bobby Scott (D-Va.), chair of the Education and Labor Committee.

“We have repeatedly pointed out that the Raise the Wage Act is not just good for workers, but good for the whole economy,” he told a phone press conference July 8. “The benefits vastly outweigh the costs.”

Supporters of the $15 minimum strongly dispute the CBO’s projection that it would cost 1.3 million workers their jobs. The agency’s report “substantially overstates the cost,” Economic Policy Institute policy director Heidi Shierholz told LaborPress.

The 1.3 million figure, she explained, is based on the median of 11 recent studies, three of which projected that raising the minimum would actually increase employment, and five of which said that it would cause substantially higher job losses. The CBO used two of those to estimate that a $15 minimum, at worst, could cost 3.7 million jobs. 

But the studies showing that raising the minimum would increase employment, Shierholz said, were “higher-quality.” For example, a 2016 study that was one of the two the CBO used to arrive at the worst-case estimate said that when the federal minimum was raised from $5.15 to $7.25 between 2007 and 2009, states where the increase was effectively largest had bigger increases in unemployment. “They failed to account for regional differences in the effects of the Great Recession,” EPI economist Ben Zipperer responded at the time.

Second, Shierholz said, the “Econ 101 models” that say “efficient” wage levels are determined by the balance between supply and demand are “completely at odds” with the reality of the low-wage job market. “Monopsony,” the presence of one dominant employer, largely eliminates competition for workers, and thus enfeebles labor-market pressure for higher wages.  

“In rural areas, you may only have one employer,” said Rep. Scott. 

The CBO report says that while the 1.3 million figure was “informed by the results from the 11 most applicable studies, the information they provide about that median is uncertain.”

Monopsony power, it also notes, gives employers “bargaining power that allows them to set wages below the rates that would prevail in a more competitive market.” In those limited circumstances, it says, “increasing the minimum wage can boost employment.”

The study also dispels common statistical fallacies about low-wage workers, which it defines as the slightly less than one-third of U.S. workers projected to be earning less than $19 an hour in 2025. While 94% of teenage workers are low-wage, it says, only 10% of low-wage workers are teenagers. Only about one-sixth of low-wage workers didn’t graduate from high school, and 44% of workers with a high-school diploma or some college are low-wage.

Minimum-wage opponents, however, seized on the worst-case estimate that the bill would cost 3.7 million jobs. Rep. Virginia Foxx (R-N.C.), ranking Republican on the House Education and Labor Committee, accused Congressional Democrats of pushing through a bill that “would force small businesses around the country to implement a crippling mandated wage hike.”

Scott said he felt confident that the Raise the Wage Act would pass the House. If the Republican-controlled Senate passes a bill with a lower increase, he continued, “we can go into conference,” and if it doesn’t pass any increase, “people will notice.” Noting that Missouri and Arkansas both approved ballot initiatives to raise their state minimums last year, he added, “I’d love to campaign on it.” 

The Senate version of the bill, introduced in January by Sen. Bernie Sanders (I-Vt.), has not received a hearing. 

However, Scott rejected the idea that a lower increase would be a fair middle ground. An increase to $10 an hour, he said, would be eaten up by inflation within five years. “There’s less risk, but there’s certainly no reward.”

“My wages have always been so low I’ve had to work two jobs,” Terrence Wise, 39, a McDonald’s worker and Fight for $15 activist from Kansas City, Mo., told the press conference. He and his fiancée, a home health aide, and their three teenage daughters, have sometimes wound up homeless, one time sleeping in their minivan outside the Burger King where he was working.

“I want to know that when I get my paycheck, it’s enough to pay my rent, feed my family, and keep the lights on,” Wise said. “What if every worker in America only had one job?

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