An activist wears a “Fight For $ 15” t-shirt during a press conference ahead of a vote on the Raise the Wage Act at the Capitol Building in Washington, DC on July 18, 2019.
Alex Wong | Getty Images
According to a report by the Congressional Budget Office on Monday, raising the federal minimum wage to $ 15 an hour, as President Joe Biden has proposed, would cost 1.4 million jobs in the next four years and lift 900,000 people out of poverty.
The impact on employment roles is slightly higher than the 1.3 million employment estimate from a 2019 report from the CBO, an agency that provides budgetary analysis to Congress.
The number has been disputed by employment advocates who cite the benefits of the increase and say companies will be able to bear the costs.
Biden has acknowledged that the plan to phase in the new federal wage floor is unlikely to meet the $ 1.9 trillion spending plan he is pushing through Congress, although he remains committed to the increase.
The CBO report estimates that the employment contraction would occur in 2025 and will come as employers cut payroll to offset the increased costs.
Along with the reduction in employment, the federal budget deficit would increase by $ 54 billion over the next 10 years, a fairly negligible level given the fiscal 2020 deficit totaling more than $ 3 trillion.
Compensation for all employees would increase by a net $ 333 billion, “an increase in wage costs for companies significantly greater than the net effect on the budget deficit during that period,” the CBO report said.
In its 2019 estimate, the agency said total household income would drop slightly net.
“Higher wages would increase the cost of producing goods and services for employers,” the report said.
“Employers would pass on some of those higher costs to consumers in the form of higher prices, and those higher prices would in turn cause consumers to buy fewer goods and services,” the report said. “Employers would consequently produce fewer goods and services, and as a result they would tend to reduce their employment of workers at all wage levels.”
There is much disagreement about the negative consequences of raising the minimum wage, which has remained at $ 7.25 since 2009.
“Many studies have shown that higher minimum wages reduce poverty, and a Census study found that wage increases for affected workers continue to grow in the years after the minimum wage has risen,” said a Goldman Sachs note.
The company added that most studies show “only modest negative effects of minimum wage increases on the employment of low-paid workers.”
Raising the minimum wage would result in higher Medicaid spending for those who lost their jobs as a result of higher wages, while Social Security spending would also increase as a result of higher salaries.
Conversely, the CBO sees less expenditure on food stamps and child nutrition programs due to increases for people with a low income.
But those at the bottom would also feel some impact.
The report expects that of the 1.4 million workers displaced by higher wages, half will drop out of the labor force by 2025.
“Young, less educated people would account for a disproportionate share of that employment contraction,” the report said.
Employment advocates have cited multiple benefits to raising the minimum wage, ranging from raising the standard of living for people with lower incomes to providing health benefits.
Raising the minimum wage “would disproportionately increase the incomes of families at the bottom of the income distribution and significantly reduce the number of families in poverty,” the Economic Policy Institute said in a recent paper.
Goldman estimated the odds that a $ 15 minimum wage would pass as “low,” with the most likely scenario being anything between $ 10 and 11 with a gradual rollout.