Raising the federal minimum wage to $15 by 2025 would fatten the paychecks of 27.3 million low-income workers, increase the collective income of working-class families by 21.9 billion, and lift 1.3 million Americans out of poverty.
It would also cost the U.S. economy 1.3 million jobs, “reduce the nation’s output slightly,” and trigger price increases that would lower total family income by 0.1 percent.
Or, so the Congressional Budget Office guesses.
Whether minimum-wage hikes reliably reduce employment has long been among the most bitterly contested questions in economics. Many fundamental premises of conservative orthodoxy depend on the existence of a trade-off between state-mandated pay hikes and achieving full employment and price stability. After all, if employers can actually afford to pay their workers more — without raising prices, or reducing investment in new positions — then the case for laissez-faire fatally weakens. High minimum wages and state support for unionization become sound policies not just in equity terms, but in macroeconomic ones.
And in recent years, empirical research has threatened to discredit neoclassical dogma. While the high priests of Econ 101 insist that forcing employers to pay workers more than their labor is worth — in the eyes of the all-knowing market — will force firms to trim their payrolls, studies suggest that Seattle’s $15 minimum wage has generated higher earnings for low-income workers without producing substantial job losses. Meanwhile, earlier this year, a broader review of 138 separate state-level minimum wage hikes enacted between 1979 and 2016 found that such increases had little-to-no impact on jobs except in a few tradable sectors. Further empirical work suggests that in places where individual employers wield significant market power, firms systematically underpay their low-income workers — and, as a result, minimum-wage increases in such areas are more likely to increase hiring (by stimulating demand) than to reduce it.
So, the nonpartisan CBO’s new report was bound to be closely watched and hotly debated. And the office did take recent empirical research into account. But it also tried to split the baby down the middle, and find some middle ground between the “new conventional wisdom” and previous research suggesting large increases in the minimum wage can produce disemployment effects. To its credit, the CBO openly admits that its estimate on job losses is shadowed by “uncertainty about the responsiveness of employment to a wage increase.”
Regardless, even if we take the job loss findings at face value, the CBO’s report constitutes a strong case for House Democrats’ $15 minimum-wage bill. Directly increasing the wages of 17 million workers who currently earn less than $15 an hour — and indirectly bumping up the wages of 10 million workers right above them on the economic ladder — would have profound social benefits. To name just one: By the CBO’s estimate, a $15 minimum-wage hike would pull hundreds of thousands of U.S. children out of poverty. Meanwhile, as the Economic Policy Institute explains, 1.3 million job losses sounds considerably more damaging than it would be in practice:
The crucial fact is that an employment decline as a result of a minimum wage increase doesn’t necessarily mean any worker is actually worse off. For a wide variety of reasons, a sizeable share of low-wage workers routinely cycle in and out of employment; each quarter, more than 20 percent of the lowest-wage workers leave or start jobs. This means that even if employment does decline as CBO predicts, workers who work less can still come out ahead because they earn much more when they are working. Consider the case of someone who now works a full-time job at $7.25 an hour for ten months a year, but can only find work for eight months when the minimum wage is increased to $15. This worker experiences a strong negative employment impact of the minimum wage increase, but actually has substantially higher annual earnings. In other words, if you take CBO’s employment estimate at face value, it is important to keep in mind that the top-line number vastly overstates any adverse impact on the living standards of the low-wage workers who experience the negative employment effects.
Given the scale of CBO’s projected benefits, and the uncertainty of its findings on a wage hike’s potential drawbacks, Nancy Pelosi’s caucus has no substantive excuse for failing to pass the Raise the Wage Act. And given the state of polling on the $15 minimum wage, Democrats don’t have any political excuse, either.
