$15 minimum wage would cost 1.4 million jobs—but could lift 900,000 Americans out of poverty
The economic and political debate over a higher minimum wage sparked back into life on Monday, after a new study by Congress’s budget watchdog agency found that increasing the federal minimum wage to $15 an hour by 2025 would cost the U.S. economy 1.4 million jobs while also lifting 900,000 Americans over the poverty line.
The study by the nonpartisan Congressional Budget Office (CBO) analyzes the economic impact of a higher minimum wage as proposed by President Biden and leading Democratic lawmakers, who are looking to more than double the current $7.25 hourly federal minimum wage over the next four years. Democrats are hoping to include the minimum wage hike in the President’s $1.9 trillion COVID-19 relief bill, which is currently being deliberated on Capitol Hill.
According to the CBO, Democrats’ proposal to gradually increase the minimum wage to $15 an hour by 2025 would directly impact 17 million workers—or 10% of the U.S. labor force—whose wages would otherwise be below that figure. It would also impact another 10 million workers who would have wages “only slightly higher” than $15 an hour and would stand to see their pay go up as well, per the study.
In addition to increasing employers’ costs and raising prices for consumers, the proposed minimum wage hike would reduce U.S. employment by 1.4 million jobs (or 0.9%), according to the CBO’s estimate. But it would also reduce the number of Americans living in poverty by an estimated 900,000, while affected workers would see their cumulative pay grow by a combined $333 billion between 2021 and 2031, per the CBO.
From a budget perspective, the minimum wage increase would grow the federal budget deficit by $54 billion over that 10-year period, the study says—a fairly minimal figure, considering that the U.S. government’s fiscal 2020 deficit ran north of $3 trillion.
But the budget impact could be a boon for Democrats looking to include the minimum wage hike in the coronavirus stimulus package, which in lieu of Republican support will likely need to be passed via filibuster-proof budget reconciliation measures requiring only a 51-vote Senate majority. In order to pass via reconciliation, a bill must have a direct impact on federal spending, revenues, and debt, and President Biden recently cast doubt on whether the measure would “survive” the Senate’s budget reconciliation rules.
Already, proponents of the minimum wage increase have welcomed the CBO report. Sen. Bernie Sanders (I-Vt.), who chairs the Senate Budget Committee, said the study indicates “that we can clearly raise the minimum wage to $15 an hour under the rules of reconciliation”—adding that Democrats “are never going to get 10 Republicans to increase the minimum wage” sans budget reconciliation.
While Congress last raised the minimum wage in 2009, many states have since taken measures to raise their own pay floors above the federally mandated level. In November, Florida voters passed a ballot initiative that will gradually hike the state’s minimum wage to $15 an hour by 2026.
More politics coverage from Fortune:
- Treasury Secretary Janet Yellen: The most prepared woman in Washington
- Commentary: One of Biden’s first acts as President may have broken the law
- 5 steps the U.S. government could take to tackle the crisis facing working women
- Meet Joe Manchin—the U.S. senator who holds the keys to Biden’s agenda
- Commentary: Biden wants government to “buy American.” Using Amazon could make that hard to do