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Monday, July 8, 2019

CBO Says $15 Federal Minimum Wage Will Cost 1.3 Million Jobs

By Eric Boehm - July 08, 2019 at 04:45PM

Raising the minimum wage to $15 an hour would cost an estimated 1.3 jobs but would also lift more workers above the poverty line, the Congressional Budget Office (CBO) estimates in a report released Monday.

The current federal minimum wage is $7.25 an hour, though most states have minimum wage laws requiring higher pay. Earlier this year, House Democrats introduced a bill to raise the federal minimum wage to $15 per hour by 2025, and most Democrats in the 2020 presidential field have endorsed that plan. That plan builds on an unsuccessful Obama-era effort to set the federal minimum wage at $10.10 per hour.

If implemented by 2025, the CBO estimates, the $15 federal minimum wage would boost paychecks for 17 million workers who would otherwise earn less than $15 per hour. About 10 million workers who now earn about $15 an hour might see their paychecks increase slightly as well. The trade-off would be 1.3 million more people out of work. Those who lose their jobs (or are unable to find them in the first place) are likely to be lower-income workers, unskilled workers, and those with little work experience.

The CBO also ran projections for smaller minimum wage increases. If Congress hiked the minimum wage to $12 per hour by 2025, about 5 million workers would benefit from bigger paychecks and about 300,000 jobs would be lost. An increase to $10 per hour would benefit only 1.5 million workers and would have a negligible effect on employment levels (largely because 15 states already have minimum wages set at or above that level).

"For most low-wage workers, earnings and family income would increase, which would lift some families out of poverty. But other low-wage workers would become jobless, and their family income would fall—in some cases, below the poverty threshold," the CBO concludes.

Democratic presidential candidates and others on the left will probably try to use the report to bolster the case for a higher minimum wage, claiming that the benefits outweigh the costs. The Employment Policy Institute, a left-leaning think tank, is already claiming the CBO "substantially overstates the costs" associated with higher wage mandates.

But it's important to remember that any negative consequences—regardless of what they might be—will fall most heavily on workers with fewer skills or little experience. Someone who has a hard time finding a job that pays $8 an hour will be completely out of luck if employers are required to hire only workers who are worth $15 an hour.

It's also important to remember that low-wage workers aren't always from low-income families. Think of teenagers working summer jobs, for example, or students working part-time while they pursue higher education. In other words, some of the beneficiaries of higher minimum wages aren't really what is traditionally thought of as "poor"—and the truly needy are more likely to lose out on entry-level jobs.

Having the feds set a minimum wage rate introduces additional problems. The law's consequences in poorer, rural states will not be the same as its consequences in places with a higher cost of living. In other words, a $15 minimum wage will do more damage in Mississippi than in New York City. Forcing all American businesses to pay the same minimum wages makes little sense.

State lawmakers will make mistakes too, of course—California's $15 per hour minimum wage means vastly different things depending on whether you live in Los Angeles or the poorer, rural counties of the state's Central Valley, where unemployment is already high.

Eighteen states began 2019 with higher minimum wages than they had at the start of 2018, according to the National Conference of State Legislatures, which tracks state-level policies. Eight of those states automatically increase their minimum wages to track with the cost of living, while 10 others adopted increases because of specific legislation or ballot initiatives. Four other states have approved minimum wage increases during 2019.


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