- Annie Fadely is the senior policy and programs associate at Civic Ventures and a producer of the “Pitchfork Economics” podcast.
- She says the Congressional Budget Office’s report that a $US15 minimum wage will kill jobs should be more nuanced.
- Fadely cites research indicating that any decrease in employment would be negligible, and well worth it to increase wages.
- Visit the Business section of Insider for more stories.
This week the Congressional Budget Office released an analysis of the Raise the Wage Act, which would raise the federal minimum wage to $US15 an hour by 2025. The report found raising the wage would have many positive effects, but the email notifications that landed in my inbox focused on the same finding they always do: A minimum wage hike to $US15 an hour would result in 1.4 million lost jobs. Sounds scary â€” especially to minimum-wage workers who lost their jobs in the pandemic.
But the actual facts are not so scary. The CBO report shows a $US15 minimum wage would have massive benefits, and there’s good reason to be sceptical about the report’s scariest, most headline-grabbing findings.
According to the report, increasing the federal minimum wage to $US15 by 2025 will do a lot of good:
- Lift 900,000 people out of poverty
- Raise income for 17 million people (one in 10 workers), to the tune of $US509 billion over 10 years
- Potentially increase wages for another 10 million people who currently make close to $US15
And they predict, as they have in the past about any minimum wage increase, that it will also have some side effects:
- Reduce employment by 1.4 million jobs
- Increase the federal deficit by $US54 billion over 10 years
- Increase prices for goods and services
These estimates are based on CBO’s most recent economic forecast, which has faced its own criticism for being, at different times, “overly optimistic,” “needlessly pessimistic,” and “disturbingly complacent.” And unlike academic minimum wage studies, we can’t replicate CBO’s findings. As Slate’s senior business and economics correspondent Jordan Weissman tweeted, “From a wonk perspective, one frustrating thing about this CBO report is that it doesn’t actually include all of the information you’d need to figure out exactly how they reached their conclusions.”
Bloomberg economy reporter Katia Dmitreva agrees the “the stuff under the hood” is strange. She points to a CBO report from last year that also covered the effects of a $US15 minimum wage, but found a smaller employment impact. That’s because, she says, “CBO changed methods” to highlight the average instead of the median, which “skews the number higher, because they’re likely including studies that show a much bigger job loss impact.”
OK, no problem â€” we’ll work with what we’ve got.
Job loss and the minimum wage
Let’s start with job loss, which CBO said will be 1.4 million jobs. Who knows what methods they used to get there, but it doesn’t really matter. There is plenty of existing rigorous research showing the employment impact of raising the minimum wage is negligible, if anything.
A number of recent studies back this up. A 2019 survey of 138 state-level minimum wage changes over four decades found wages and job numbers stayed mostly level.Another sweeping 2018 study from UC Berkeley found that raising the minimum wage is good for everyone, and did not detect significant negative employment effects.
Also, a recent international review by UMass economist Arin Dube found that for every 1% increase in wages, there is an associated 0.04% decrease in employment. That’s one-tenth the size of CBO’s estimate, or as Dube puts it, “quantitatively close to zero.” Even David Nuemark, an economist whose research is reliably favoured by conservative politicians, recently estimated job loss one-quarter the size of CBO’s.
So with economists like Dube and Neumark finding relative agreement, how did CBO end up with an outlier almost four times as high as conservative estimates?
Economic Policy Institute (EPI) Senior Economist Heidi Shierholz, who was Chief Economist at the Department of Labour under President Obama, called CBO’s employment effects of the minimum wage “really out there,” saying “CBO’s employment impacts of the minimum wage from today’s report are about 25% higher than they would have been if they had simply used the methods they themselves used two years ago. What is going ON.”
A cadre of EPI economists and analysts also wrote that they believe “the CBO’s assumptions on the scale of job-loss are just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate.”
Minimum wage and federal debt
Regarding CBO’s suggestion that a $US15 minimum wage would increase the federal deficit by $US54 billion over the next 10 years, recent research directly disputes this claim. A team at UC Berkeley recently found a $US15 minimum wage would have a positive effect on the federal budget by $US65.4 billion per year, mostly based on safety net program savings and increased payroll tax revenues.
Finally, CBO says generally that $US15 will raise prices, but doesn’t say by how much. Last month, a study from Princeton looked at minimum wage price pass-through at McDonald’s restaurants that saw nearly 300 minimum wage increases over five years, and found a 10% minimum wage increase led to a 1.4% increase in the price of a Big Mac â€” an unnoticeable increase. And a 2019 study found that, two years into implementation, grocery store prices were not affected by Seattle’s minimum wage policy.
The CBO doesn’t even fully take into account all the society-wide benefits of a higher minimum wage, which are extensive â€” the Washington Post has a good summary. And other studies on the benefits of $US15 have estimated it would actually lift pay for closer to 40 million workers, which is 26.6% of the workforce.
Believing the CBO
The question this discussion naturally brings us to now is this: Should we believe the CBO? I think, generally and for the good of the order, that we should â€” but we shouldn’t forget that beneath that impressive government entity title are economists and researchers working with imperfect data and imperfect models. They do the public and Congress a great service, but they’re only human. And they have been wrong before.
Even if CBO’s estimates are spot-on, a $US15 minimum wage is still well worth it. As Reverend Dr. William J. Barber II, co-chair of the Poor People’s Campaign, wrote: “The CBO report makes clear that raising the minimum wage to $US15/hr is key to lifting people out of poverty and the COVID recession. When combined with healthcare, infrastructure investment, and affordable housing, it can reconstruct an economy that works for all of us. The question isn’t how much it will cost, but what it costs us not to.”
The minimum wage is the lowest it’s been in decades right now, adjusted for inflation â€” and two-thirds of Americans support increasing it to $US15. The good news is the Progressive Caucus announced on Monday that they had secured the inclusion of a $US15 minimum wage in the House’s pandemic reconciliation package, so even after taking the CBO report under advisement, the House came to the conclusion â€” supported by the majority of recent studies â€” that raising the minimum wage is a net good for everyone.
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