The Congressional Budget Office (CBO) recently released a report analyzing the economic impact of raising the federal minimum wage to $15 in 2025. They find that a federal $15 minimum wage would boost worker pay, increase the income of lower and middle-income families, and reduce poverty and inequality.
Specifically, 27.3 million low-wage workers would receive higher wages, reducing the number of people living in poverty by more than 1.3 million. The CBO found that 90 percent of the workers affected by the policy are age 20 or above, and nearly half of those lifted out of poverty would be children. As a group the annual earnings for low-wage workers would be $44 billion higher in 2025.
One wrinkle in this story – the CBO also estimates more than a million “job losses.” Even though the net increase in pay more than offsets any reduction in work hours for low-income workers, this finding will trouble many policymakers and analysts.
But there are some things to keep in mind. First, not all of these “job losses” will lead to unemployment. The CBO counts any reduction in work effort as a job loss, so employees who work fewer hours count as job losses, even if they end up making more overall. Second, past research on the minimum wage has shown that the workers most likely to reduce their work effort in response to higher minimum wages are “secondary” or “tertiary” earners.
These are minimum wage workers for whom the minimum wage provides a “lower surplus” than it provides primary earners. This might be a teenager from a middle-class family who works while going to school. The overall increase in household income might persuade them to reduce their work effort to focus more on their studies, for example.
Finally, the CBO assumptions are based on research from specific industries like restaurant workers. But the highest quality and most recent research shows the minimum wage does NOT reduce employment generally.
The CBO report already shows that the benefits outweigh the costs, but this is especially true since the CBO likely overstates the downsides of a higher minimum wage.