There's nothing like a shiny new report from the Congressional Budget Office to start off the week. Today, CBO released its analysis of raising the federal minimum wage to $15, and it's a dog's breakfast.
Why? Because some of the analysis is for the cumulative effects through 2031 while other parts are for the one-year effect in 2025. The best I can do is to divide the cumulative effects by ten which should roughly produce one-year estimates for 2025 that are comparable to each other. Here you go:
- 20+ million people will receive $51 billion in higher pay. That's about $2,000 per person.
- 1.4 million people will receive $17.5 billion in lower pay due to reduced employment. That's about $12,000 per person.
- 0.9 million people will be lifted out of poverty.
- The budget deficit will grow by $5 billion.
- Effects on GDP, interest rates, and the labor-capital income ratio would be tiny.
This is roughly comparable to the consensus of recent literature in the minimum wage field. Basically, a large number of people get a small increase in pay while a small number of people get a large decrease in pay. This is the basic tradeoff, and there's not a lot more that economic analysis can tell us. At this point, it's strictly a matter of values. Do you think the overall benefit is greater than the overall loss? Or not?
I was a little disappointed that CBO didn't produce a table showing these figures for various changes in the minimum wage. I know that's not their job (their job is to analyze legislation as written), but I would have been interested in their guess at the tradeoffs at different levels of the minimum wage.
Why does this impact the budget deficit? Lower payroll tax receipts? But it seems like the 20+ million getting higher pay more than offsets the 1.4 million or so who will see their hours cut or be reduced to part time. What am I missing?
because of higher costs for goods and service. it's right there in the study.
I wonder if the analysis takes into account the additional employment from spending the net $33.5 billion increase in pay. The additional $5 billion deficit is negligible, but the same question applies there.
what kind of implementation for the $15 minimum wage did the CBO analyze and what kind i being pushed by congressional dems? specifically, i would expect some sort of federal subsidies based on business size and average income in the region. if the government just mandates a 15/hr wage without some way to account for regional differences in the ability of businesses to handle it, it seems like a lot of small businesses in low income areas are just going to close down.
If everyone's wages in that area go up, then they can all afford to spend a little more to cover the increase costs for local (retail/restaurant) businesses. In other words, it will mainly be a wash.
It can hurt companies that low bid on contracts because they don't have to pay their workers much.
1) increasing the minimum wage won't increase everyone's wages. it may put some upward pressure on wages for people already above minimum, but how much, in which income bands and over how long are complicated questions.
2) whatever adjustments do pan out over time may be too late to prevent many small businesses from going broke.
3) even if 15/hr is supportable without some sort of federal subsidy to even things our regionally, cost of living is so variable that if 15 is viable in Tinyville, USA then we shold prob be paying a significantly higher minimum wage in high cost urban areas to make it truly livable everywhere.
I once looked back at empoloymengt following every single Federal minimum wage increase since after WWII and as I recall, there was not one single instance in which national employment in the following two years showed the slightest sign of the number of jobs having been affected to any extent whatsoever. The CBO analysis seems to be a purely theoretical one.
For one thing, no increase in GDP is assumed, and yet moving income into the hands of people with the greatest propensity to spend it -- and spend it locally instead of on trips to Thailand and condos in Nice -- would seem likely to have a positive effect on GDP. One thing that always seems to be ignored by opponents is that it affects all competing business essentially the same, and there are many ways to offset any negative effects -- maybe with a job temporarily not filled here, a slight increase in prices there, slightly lower profits for a small amount of time, and more income and higher sales volume among the customer base. How elastic are sales of these goods and services anyway? I can't see people cutting back on McDonalds because prices for a meal went up 25 cents.
Anything that pushes up incomes from the bottom is absolutely an unalloyed good thing. We don't need to waters muddied with pointless hand-wringing.
+1
Granted, it's a difficult problem; everything in the economy is connected to everything else. Just as one example, the CBO expects that some low-wage jobs would be eliminated by automation and technology - which apparently just fall out of the sky, as they do not estimate any employment gains or increased output in the industries that supply technology.
Another way to look at the whole issue is to note that in the late 1970's, pay and productivity, which had been rising together for decades, began to diverge: https://www.epi.org/productivity-pay-gap/
Not only the minimum wage, but the wages of all nonsupervisory workers failed to keep up. Yet productivity continued to increase at approximately the same rate as it had in the postwar period, including the decades when wages kept up. So, suppose that wages had kept going up with productivity. There is no reason to suppose that productivity would have slowed. In fact, there is reason to think that productivity might have grown somewhat more, because additional automation becomes economically attractive when wages are higher. So today's economic output would be the same or higher, and wage-earners would be better off. Now, if the CBO analysis is correct, we would in this counterexample e missing maybe a million jobs - they just never would have been created. Would we lament the loss? I am reminded of this story: https://quoteinvestigator.com/2011/10/10/spoons-shovels/