CBO Says Raising Minimum Wage to $15 an Hour Would Kill Jobs, Because Obviously It Would

A higher federal minimum would reduce employment and increase the deficit, according to a new nonpartisan government analysis.

In a bombshell report released yesterday, the Congressional Budget Office (CBO) came to the shocking conclusion that raising the federal minimum wage to $15 would cost the economy more than a million jobs. 

Specifically, the CBO estimates that raising the minimum wage would cost 1.4 million jobs, reducing total national employment by 0.9 percent in 2025, the first year in which the full $15 hourly wage would be in effect. Some people's wages would increase, lifting about 0.9 million people out of poverty in the process; the evidence suggests these higher wages would be largely paid for by consumers in the form of higher prices. The knock-on effects to employment, taxation, and various federal programs would raise the deficit by about $54 billion over the next decade. 

I am being somewhat hyperbolic when I call this a bombshell; this conclusion is not a shock or much of a surprise at all. You can always argue with the CBO's estimates and models, and at times it's been quite wrong. But it's fairly obvious that substantially raising federal wage requirements would result in some number of employers choosing to employ fewer people, especially in rural areas with lower costs of living where employers are likely to be more sensitive to increased labor costs. Of course hiking the minimum wage would cost jobs. 

In recent years, however, it has become fashionable in certain quarters of the left to minimize or outright dismiss the negative effects on employment caused by raising the minimum wage. Sen. Bernie Sanders (I–Vt.), a longtime backer of raising the federal minimum, for example, has been known to cite figures from a study that assumed that raising the wage to $15 an hour would result in no net changes to employment. Essentially, in this view, everyone making below $15 an hour would get a raise, and no one would lose a job. A January press release put together by House Democrats on the Education and Labor Committee cited a related analysis which declared that "high quality academic scholarship confirms that modest increases in the minimum wage have not led to detectable job losses." (Whether a hike from the current $7.25 an hour to $15 counts as "modest" is, at the very least, a question worth pondering.) 

In any case, the left-of-center gloss on minimum wage research tends to dismiss research to the contrary, of which there is plenty. Just last month, for example, University of California, Irvine, economist David Neumark and Peter Shirley of the West Virginia Legislature Joint Committee of Finance, published a lengthy review of 30 years of research on the minimum wage. Neumark is a well-known skeptic of the notion that minimum wage increases don't cost jobs. But this paper, published through the National Bureau of Economic Research, was a review of decades of data, not a single study. What they found was that the "clear preponderance"—almost 80 percent—of minimum wage studies since the beginning of the Clinton administration concluded that minimum wage hikes cost jobs. 

Not surprisingly, given who tends to work minimum wage jobs, "this evidence is stronger for teens and young adults as well as the less-educated." Similarly, CBO's new analysis found that "young, less educated people would account for a disproportionate share of those reductions in employment."

This is notable, given the unique structure of America's current economic predicament, which has hit younger, less educated, lower earning workers especially hard. As I have previously written, a Penn Wharton Budget Model (PWBM) analysis of the economic effects of President Joe Biden's $1.9 trillion COVID relief plan—which includes hiking the minimum hourly wage to $15—noted the large amount of research finding that "unemployment has been disproportionately concentrated among lower wage and young workers in specific sectors, e.g., retail and leisure and hospitality." A dramatic hike in the minimum wage would cost jobs in the very same group that is currently suffering the worst effects of the COVID-induced recession. 

Backers of the plan might argue in response that the plan phases in a minimum wage increase over a period of years, and would presumably not take hold until well after the current crisis has ended. But that's just another way of saying that minimum wage boosters want to hit today's younger, lower-income workers with a double blow to their prospects—first the recession, and then the minimum wage hike.

It is somewhat ironic that the current push for a much higher minimum wage is coming even as the Democratic party's economic policy orthodoxy has moved left in an effort to run the economy "hot." The prevailing belief among many of the party's technocrats is that previous generations of center-left policymakers were too worried about inflation, and not worried enough about employment. 

Whether or not the balance of concern was misplaced in the past, it is certainly true that jobs and employment matter immensely on both a macroeconomic and personal, household-level scale. Jobs are part of the foundation of a strong economy, and stable employment has major individual benefits. Entry level jobs are a key way for younger, less-skilled, less-educated workers to build valuable skills that can help them maintain work over a lifetime.

Yet Democrats are now backing a policy that would in all likelihood significantly reduce employment, and longer-term employment opportunities, among those who have already been hurt by the COVID recession the most.