Raising the minimum wage to $15 an hour would significantly reduce poverty and increase earnings for millions of low-wage workers, while adding to the federal deficit and cutting overall employment, according to a new study from the nonpartisan Congressional Budget Office.
The report is sure to animate the already heated debate over whether to include raising the federal minimum wage in legislation to help the sputtering economic recovery and aid vaccine distribution.
The White House’s proposal would raise the minimum wage from its current level, $7.25, to $15 with increases of approximately $1.50 every year for five years.
On one hand, the CBO estimated that raising the minimum wage to $15 an hour by 2025 would cost 1.4 million jobs and increase the deficit by $54 billion over 10 years.
But it also estimated the policy would lift 900,000 people out of poverty and raise income for 17 million people – about one in 10 workers. Another 10 million who have wages just above that amount could potentially see increases as well, the CBO reported.
The net pay going to the country’s workers would grow substantially, by $333 billion, as the increase in pay for workers would more than double the amount subtracted by the workers who lose their jobs, according to the estimate.
The minimum wage proposal has split the more liberal wing of the Democratic Party from moderates such as Sen. Joe Manchin, D-W.Va., who has said that he does not support the proposal. He did not return a request for comment sent to a representative.
Republicans have pushed back heavily against the $15 minimum wage proposal, arguing it would kill jobs and hurt small businesses.
The $7.25 federal minimum wage has not been changed since 2009 and remains below historic levels when adjusted for inflation, despite gains in worker productivity. It works out to just $15,080 a year before taxes on a 40-hour a week schedule.
Minimum-wage debates for years have been tempered by warnings that companies would lay off many people to pay higher wages to some.
Supporters of increasing the minimum wage highlighted the CBO’s findings about poverty reduction.
“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,” Sen. Patty Murray, D-Wash., chair of the Senate’s Health, Education, Labor, and Pensions Committee, said in a statement.
The U.S. Chamber of Commerce, the country’s most prominent business association, said the report validated its concerns about the job loss as a result of raising the minimum wage.
“We are open to a discussion about a fair and reasonable increase to the minimum wage and look forward to working with members of Congress on a stand-alone bill that could get broad bipartisan support,” said Glenn Spencer, a senior vice president at the Chamber.
But supporters of a higher minimum wage point to the experience of states and cities such as Seattle that have passed their own laws to show the benefits of such policies – and that they have not resulted in drastic levels of unemployment or scheduling reductions.
“It’s really not a stretch to say that new consensus has emerged that minimum wage increases do not result in substantial job loss,” Heidi Shierholz, director of policy at the left-leaning Economic Policy Institute, said on a call on Monday.
Shierholz said the CBO’s estimates showed that the benefits to low-wage workers outweighed the costs, but she was critical of the calculation of those costs, saying the CBO had relied on an outdated methodology.
Public opinion surveys have found wide support among Americans for raising the federal minimum wage to $15 an hour. The yearly income for this wage is $31,200 a year before taxes – an amount that still puts some below the living wage in many parts of the country, economists have said.
Michael Reich, a prominent minimum-wage expert at University of California, Berkeley whose work is cited by the CBO, disputed the report’s more pessimistic estimates.
“Studies have found that wage floors have minimal to low effect on level of jobs or for inflation,” he said on a call with reporters. “Minimum-wage increases are generally paid for small price increases, mostly in restaurants, but restaurants have increased sales….When low-wage workers get a wage increase they put it to good use – to improve living standards of themselves and their families.”
Reich did his own estimate of the minimum wage proposal earlier this month, which found that instead of creating a budget deficit, it would increase federal tax revenue by $65 billion a year. This was due largely to increases in payroll taxes from higher wages and a reduction in government spending on safety net programs such as food stamps, Medicaid, and the Children’s Health Insurance Program, which are heavily used by people earning below minimum wage and living in poverty.
On Friday, President Joe Biden said in an interview with “CBS Evening News” that he didn’t expect the measure to make the $1.9 trillion coronavirus relief package under consideration by Congress.
Biden said in the CBS interview that he was prepared for a “separate negotiation” that would raise the minimum wage.
“Look, no one should work 40 hours a week and live below the poverty wage,” he said. “And if you’re making less than $15 an hour, you’re living below the poverty wage.”
White House spokeswoman Jen Psaki told reporters on Monday she had not discussed the CBO report with the White House economic team.
“The president remains committed to raising the minimum wage. It’s something he firmly believes in,” she said.
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The Washington Post’s Jeff Stein contributed to this report.