$15 Minimum Wage Would Do More Harm Than Good
The Congressional Budget Office assesses several reform proposals.
A new Congressional Budget Office report titled “The Effects on Employment and Family Income of Increasing the Federal Minimum Wage” comes to some rather stark conclusions.
The executive summary:
The federal minimum wage is $7.25 per hour for most workers. The Congressional Budget Office examined how increasing the federal minimum wage to $10, $12, or $15 per hour by 2025 would affect employment and family income.
• In an average week in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than $15 per hour. Another 10 million workers otherwise earning slightly more than $15 per hour might see their wages rise as well. But 1.3 million other workers would become jobless, according to CBO’s median estimate. 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 number of people with annual income below the poverty threshold in 2025 would fall by 1.3 million.
• The $12 option would have smaller effects. In an average week in 2025, it would increase wages for 5 million workers who would otherwise earn less than $12 per hour. Another 6 million workers otherwise earning slightly more than $12 per hour might see their wages rise as well. But the option would cause 0.3 million other workers to be jobless. There is a two-thirds chance that the change in employment would be between about zero and a decrease of 0.8 million workers. The number of people with annual income below the poverty threshold in 2025 would fall by 0.4 million.
• The $10 option would have still smaller effects. It would raise wages for 1.5 million workers who would otherwise earn less than $10 per hour. Another 2 million workers who would otherwise earn slightly more than $10 per hour might see their wages rise as well. The option would have little effect on employment in an average week in 2025. There is a two-thirds chance that the change in employment would be between about zero and a decrease of 0.1 million workers. This option would have negligible effects on the number of people in poverty.
The two main sources of uncertainty about the changes in employment are uncertainty about wage growth under current law and uncertainty about the responsiveness of employment to a wage increase.
In graphic form, it looks like this:
Dave Schuler argues that the report “demolishes the case for a $15/hour minimum wage” and that Democrats and others those looking to help the less fortunate should “try something else.”
Persisting in campaigning for a $15/hour minimum wage at this point would suggest that your actual objectives in a $15/hour minimum wage are something other than helping the people you’re claiming you want to help. Objectives that have been suggested are to render non-unionized minimum wage workers non-competitive with unionized ones which seems pretty convoluted to me or giving unions with minimum wage multiple contracts an automatic raise.
According to the Bureau of Labor Statistics, the percent of hourly workers who receive the minimum wage or less is 2.3% of hourly workers, about 1% of total workers. They tend to be young, in the South, and work in the restaurant and food service sector. It would be interesting to see the effect of increasing the minimum wage on rents since the states that have increased their minimum wages also have higher rates of homelessness.
I presume advocates of the $15 wage are well-meaning but I agree with Dave’s assessment.
At the aggregate level, the trade-offs forecast by the CBO would be stark. Yes, millions would see at least some increase in their pay. But the 1.3 million who would at least nominally be lifted out of poverty with a $15 dollar minimum wage would be entirely offset by those losing their jobs.
I’m dubious of a single median wage across the United States to begin with. $15/hour for 40 hours a week times 52 weeks a year is $31,200. That’s 72% of the median household income in our poorest states but only 39% in our richest. Which is to say, it’s probably too high for West Virginia and Arkansas and almost certainly too low for Maryland and DC.
We need to figure out how to shore up the middle class, for economic, social, and political reasons. It’s not obvious, though, that targeting hourly workers is the way to go.
Dave elsewhere advocates doing more to keep manufacturing jobs in the United States and keeping out competition from immigrants—especially unskilled ones but also H1B visa recipients on the higher end. I have decidedly mixed feelings on both fronts.
I’m also skeptical, for a variety of reasons, about massive wealth transfers via the tax code that the progressive wing of the Democratic Party advocates. But continually cutting the rate paid by top earners, particularly those in the financial sector, pushed for so many decades by the Republican Party has contributed to the problem rather than “trickling down.”