What are the Impacts of a $15 Minimum Wage?

The “fight for $15” continues to be part of the national conversation around employment as the 2020 presidential campaign heats up. 

As the cost of living in many cities continues to increase, ensuring that everyone receives a higher baseline wage sounds great, but what are the implications for the economy overall? The Congressional Budget Office (CBO) studied those effects and reported them earlier this year. 

As with a lot of things in politics, the reaction to the report was mixed. Some saw it as a reason to hold off on raising the minimum wage, while others questioned the CBO’s methods and whether its conclusions are really accurate.

Minimum Wage Background and Options

The federal minimum wage is currently $7.25 per hour and has not changed since 2009, although about half of the states have raised it on their own over the past few years, according to the National Conference of State Legislatures.

In 2018, about 1.7 million people were working jobs at or below the federal minimum wage. While some of these workers are teenagers starting their first jobs, most are adults, according to the Bureau of Labor Statistics.

Many of the states that have raised wages are doing so on a sliding scale, with wages going up a dollar or two each year over the next 3-5 years. This sliding scale approach, the states argue, gives businesses time to adjust to paying employees more while still putting more money in workers’ paychecks.

Over the past few years, the “fight for $15” movement has taken hold in Democratic politics, with at least a dozen of the 2020 presidential candidates supporting a $15 minimum wage. 

In July, the U.S. House passed the Raise the Wage Act, which would increase the federal minimum wage to $15 by 2025. The Democrat-supported bill passed 231-199, mostly along partisan lines, though six Democrats opposed it and three Republicans supported it. The Senate’s GOP majority, however, is unlikely to take up the bill, and President Trump is not likely to sign it.

The CBO Weighs In

The CBO studied the respective impacts of raising the federal minimum wage to $10, $12, and $15. Its report found that raising the minimum wage to $15 would result in higher pay for at least 17 million workers by 2025 — but could cause as many as 3.7 million workers to lose their jobs as employers look to streamline operations in light of higher wages.

The CBO also concluded that a $15 minimum wage would lift an estimated 1.3 million people out of poverty by 2025. This presents a difficult challenge for lawmakers as they try to find the right balance between increasing wages and preserving jobs.

As one might expect, the number of job reductions decreases if the minimum wage increases to $12 or $10 per hour, but so does the number of people who would move above the poverty line. 

According to the CBO, a $12 minimum wage would increase wages for about 5 million people, while the number of people living below the poverty line would fall by about 500,000. A $10 federal minimum wage would raise wages for 1.5 million workers while having a negligible effect on the poverty rate.

Report Reaction

Reaction to the CBO report was split across partisan lines, with Republicans sounding the alarm about the potential job losses while Democrats focused on the standard of living increases for low-income Americans.

According to the New York Times:

“This report confirms what we already knew about House Democrats’ Raise the Wage Act,” said Representative Steve Womack of Arkansas, the top Republican on the Budget Committee, “American workers and families will lose their jobs if this bill is enacted.”

“As a group, low-wage workers would be just unambiguously better off,” said Heidi Shierholz, policy director at the Economic Policy Institute, a liberal think tank that has long pushed for minimum wage increases. “The bottom line is the benefits exceed the costs.”

With the stalemate in Washington over the Raise the Wage Act, it’s unlikely that any significant federal policy changes will happen before the next presidential election.

Grassroots Pulse covers public policy and political issues aimed at engaging highly-active policy makers, donors, and grassroots leaders at the forefront of the political process in America today.

Image credit: Photo by NeONBRAND on Unsplash

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