A $15 federal minimum wage would lift nearly a million Americans out of poverty but cost 1.4 million jobs, according to a report released Monday by the Congressional Budget Office (CBO).
The CBO’s analysis also found that if the Raise the Wage Act of 2021 were enacted, the cumulative budget deficit is estimated to increase by $54 billion from 2021 to 2031.
Some economists pushed back Monday on the analysis that the Raise the Wage Act would be detrimental to employment and the federal budget. Among them was Michael Reich, who teaches economics at the University of California at Berkeley and co-chairs the Center on Wage and Employment Dynamics at the Institute for Research on Labor and Employment.
“A phased increase would likely be absorbed without detectable effects on employment,” Reich told reporters on Monday. He said a $15 federal minimum wage would have a positive effect on the federal budget, rather than widen the deficit.
According to a report released by the Economic Policy Institute (EPI) last week, implementing a $15 wage by 2025 would increase tax revenues while “government expenditures on major public assistance programs would fall by between $13.4 billion and $31.0 billion annually.”
Reich said that once the $15 wage is fully implemented in four years, the Raise the Wage Act would have an overall positive effect of $65.4 billion on the federal budget.
He provided two examples of how the Act would translate into money-saving behaviors. In one, workers would purchase food with their paychecks rather than food stamps, leaving more savings for national nutrition programs. The same EPI report found the Supplemental Nutrition Assistance Program (SNAP), among other government payouts, would decrease by between $5.2 billion and $10.3 billion annually. In another case, older workers would delay retirement and continue collecting high paychecks. This would be relieving for the Social Security trust fund, Reich said.
The employment effect of the Raise the Wage Act is “essentially zero,” Ben Zipperer, economist at the Economic Policy Institute, told reporters on Monday.
Zipperer contrasted the CBO’s analysis with the findings of the 2020 report “Minimum Wages and Racial Inequality” by Ella Derenoncourt and Clare Montialoux. This report finds “no aggregate effect” on employment by the 1966 Fair Labor Standards Act, which extended the federal minimum wage. The report is considered a landmark consensus on the null effect of an increased minimum wage on employment numbers.
Heidi Shierholz, director of policy at the Economic Policy Institute, told reporters Monday that the CBO has not “caught up” to this consensus among economists, and the government office has “changed their methods” since publishing its 2019 report that found no identifiable effects of an increased minimum wage.
“There is a two-thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers,” the 2019 CBO analysis reads.
The CBO did conduct a review of post-2019 research on the minimum wage’s impact on employment, including Derenoncourt and Montialoux’s study, a CBO spokesperson confirmed in an email to Newsweek.
CBO’s literature review found “economic models yield conflicting conclusions” as to the minimum wage’s impact on employment, stating: “Only a limited number of empirical studies have considered whether employment responds differently to a higher minimum wage during a period of high unemployment, and those studies have yielded inconclusive results.”
Monday’s report does explain itself for the differences between the 2019 and 2021 analysis. Namely, the CBO’s baseline projections differ because the passage of a $15 state minimum wage in Florida would reduce the overall number of workers affected by the Raise the Wage Act. The differing start and end dates of the two reports also accounts for the distinct conclusions. Further, the CBO used the mean outcome of its data to base the 2021 analysis on, rather than the median value it used in 2019.
William E. Spriggs, chief economist at the AFL-CIO, said in a press call on Monday it was a “tragedy” the CBO was not acting as a “fair abitror” and “continued mischaracterizations of the minimum wage are unwarranted.”
He added the main point economists corroborate in the new CBO report was the fact that poverty will be decreased by nearly 1 million.
“Even if you take [the CBO’s] findings at face value, they find that for a really small cost to the federal government the [increased] minimum wage would do extremely valuable things,” Shierholz said, adding the CBO found the benefit for 27 million low-wage workers would far outweigh the governmental costs, shifting income from higher-income people toward lower-income people.
Shierholz said the biggest takeaway from Monday’s analysis is the impact the CBO’s conclusions have on the federal budget: “One key part of [the CBO’s] findings hinge on these employment effects. If that many people lose their jobs, then that safety net spending for them goes way up.”
There is also the question of whether Democrats can pass the Raise the Wage Act through reconciliation, the process that allows the Senate to pass legislation with only a slim majority vote. This means all Senate Democrats must unanimously support a bill if it’s to pass. Spriggs said it would be best for Congress to pass the federal minimum wage increase in reconciliation.
Spriggs added: “The CBO has stepped outside its bounds and is not speaking truth to power, but is giving information that is misleading.”