Report Tying $15 Wage to Fewer Jobs, More Deficit, Draws Fire

Some economists take issue with the methodology of the Congressional Budget Office’s new study that says a $15 minimum wage would put 1.4 million Americans out of work.

A 2015 march in Miami supporting the fight to raise the minimum wage to $15 an hour. (AP Photo/Lynne Sladky, File)

WASHINGTON (CN) — The nonpartisan Congressional Budget Office released a report Monday that says the cost of raising the minimum wage to $15-an-hour is too high: poised to create unemployment for 1.4 million Americans while lifting 900,000 people out of poverty. 

Raising the federal minimum wage for the first time in over a decade was a cornerstone of President Joe Biden’s 2020 campaign.

After an attempt to tack the issue onto Biden’s $1.9 trillion Covid relief package faced pushback, however, the Senate is now set to consider separate legislation that would raise the minimum wage to $15 an hour gradually, by 2025. 

Not even Senator Bernie Sanders, a chief proponent of $15 minimum wage, was in support of increasing the wage immediately. The Vermont Independent joined 37 other senators late last month in proposing the gradual move. 

The “Raise the Wage Act of 2021” would increase the minimum wage to $9.50 by June 1, 2021, $11 by June 1, 2022, $12.50 by June 1, 2023, $14 by June 1, 2024, $15 by June 1, 2025. After 2025, it would increase by the annual percentage increase of the median hourly wage of all employees. The bill also phases out the $2.13 subminimum wage for tipped workers.

Last month, an independent analysis by the Economic Policy Institute found that the legislation would increase wages for almost 32 million Americans, over 20% of the nation’s workforce. This includes roughly a third of all Black workers and a quarter of all Latino workers. Nearly 60% of those who would benefit would be women. 

“The Raise the Wage Act of 2021 is not just moral policy, it is also good economics,” Economic Policy Institute economist Ben Zipperer posted on Jan. 26. “This injection of wages will help stimulate the economy and spur greater business activity and job growth.”

After studying Sanders’ proposal specifically, however, the CBO said Monday that higher wages would increase the cost of production, leading employers to raise prices and consumers to purchase fewer goods and services. Because of this, employers would produce less and eventually reduce the number of employees.  

The CBO also warned that high unemployment would cause federal spending to increase for health care programs, Medicaid and Medicare, unemployment compensation and Social Security, causing the federal deficit to expand by $54 billion. 

That’s a large discrepancy from research by Michael Reich, a professor of economics at Berkeley, who estimated that a $15 minimum wage could decrease the deficit by $65 billion. 

Reich in an interview said the CBO report relied on cherrypicked studies, lending credence to research that other economists have critiqued. 

“When you find that the unemployment rate is going to go up that much, it ripples throughout the report,” Reich said. 

Leading economists have labeled the Monday report “just wrong” and “inappropriately inflated.”

“There is a longstanding difference between how we assess the economic literature versus how they assess it,” Josh Bivens, director of research at the Economic Policy Institute, said in an interview. “They don’t make any effort to discern between high-quality and low-quality studies.”

Another criticism of the report came from Senator Sanders.

“I find it hard to understand how the CBO concluded that raising the minimum wage would increase the deficit by $54 billion,” Sanders said in a statement Monday. “Two years ago, CBO concluded that a $15 minimum wage would increase the deficit by less than $1 million over 10 years. Further, several major studies done by the Center on Wage and Employment Dynamics and the Economic Policy Institute both found that raising the minimum wage would amount to a significant reduction in the deficit.” 

Bivens said the CBO did reach some sound findings on issues not affected by the unemployment numbers. The report shows significant effects on both the taxation and the spending side, supporting Sanders’ view that a $15 minimum wage can help on the budget side.

The federal minimum wage has remained at $7.25 since 2009, though 29 states and the District of Columbia have upped the minimum wage for local employers. In New York City and San Francisco, the $15 minimum is already law of the land.

Many Democrats still hope to tackle wage minimums as the Covid-relief package goes through a legislative process known as reconciliation.

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