CBO report: $15 minimum wage would benefit millions of workers, slash poverty

CBO report: $15 minimum wage would benefit millions of workers, slash poverty

- in News, Top Story

Report authors, advocates differ over possible side effects

On Monday, the Congressional Budget Office (CBO) released a cost estimate of the Raise the Wage Act, a federal bill to phase in a minimum wage of $15 an hour by 2025.

HR 582, whose primary sponsor is Congressman Bobby Scott (D-VA), the Chairman of the House Committee on Education and Labor, proposes a six-step phase-in to gradually increase the federal minimum wage by $1.30 every year until January 1, 2025, after which the minimum wage would be set at $15 and subject to annual review by the Secretary of Labor. All three North Carolina Democratic representatives – Alma Adams, G.K. Butterfield and David Price – are bill sponsors.

The current North Carolina and federal minimum wage is $7.25 an hour.

In a press call on Monday, Congressman Scott said that the report “comes to the clear conclusion that the benefits of gradually increasing the minimum wage to $15 an hour far outweigh any potential costs to American taxpayers.”

The CBO report assessed the effects of three minimum wage increase options: raising the minimum wage to $10 by Jan. 1, 2025, raising it to $12 by the same date, and raising it to $15 by the same date.

The report found that in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than that wage. The wages of 10 million other workers, which would otherwise be slightly more than $15, might also increase slightly. Overall, the report found that the bill would raise 1.3 million Americans out of poverty.

However, the report also found that another 1.3 million workers would become jobless as a result of the wage increase.

The CBO acknowledged that the total effects of an increase to $15 are unclear. There is “considerable uncertainty about the responsiveness of employment to an increase in the minimum wage,” the report states.

“Many studies have found little or no effect of minimum wages on employment, but many others have found substantial reductions in employment,” the report continued.

During the press call Monday, Heidi Shierholz, policy director at the Economic Policy Institute, argued that the CBO had not accurately weighed the economic literature it used in making its predictions. Shierholz contended that most well-reputed studies found that the effects on employment of a minimum wage increase are negligible.

“While CBO’s bottom line is that the benefits to low-wage workers of a $15 minimum wage would outweigh the costs, CBO nevertheless substantially overstates the costs. CBO finds that the policy would lead to a decline in employment of 1.3 million—though in choosing the parameters that resulted in that conclusion it failed to appropriately weight the highest quality studies in the vast academic literature on this issue,” Shierholz wrote in a statement on Monday.

Shierholz also asserted that economists’ models that always predict job loss after a minimum wage increase, or what she called “Econ 101 supply and demand graphs,” have little bearing on the reality of the low-wage labor market.

The report acknowledged that different employers would respond to a higher minimum wage differently depending on their individual circumstances and policies. Overall, though, the $15 minimum wage would have a much more drastic effect than the $10 or the $12 wage increase.

“In each case, increasing the minimum wage would have two main effects on low-wage workers. The large majority would have higher wages and family income, but a smaller group would be jobless for a long enough period that they would have lower family income,” the report concluded.

Shierholz maintained that as a result of the bill, low-wage workers would be “unambiguously” better-off as a group.

Congressman Scott said that he expected the bill to be heard on the House floor next week.

A similar local bill has been languishing in the North Carolina House Committee on Finance since late February.

There are currently 79,000 workers in North Carolina making the minimum wage or less, according to 2018 data from the U.S. Bureau of Labor Statistics. HB 146, primarily sponsored by Representatives Jean Farmer-Butterfield (D-Wilson) and Kandie Smith (D-Pitt), has a tighter goal than HR 582: to phase in a minimum wage of $15 an hour by 2024, not 2025.

Calculations by the North Carolina Budget and Tax Center (BTC)* suggest, however, that $15 is far too low to really be considered a living wage for almost anyone.

“The minimum wage standard is ineffective at reflecting what it takes to make ends meet because it was never intended to do anything more than represent a basic pay floor,” BTC policy analyst Brian Kennedy wrote in a March 2019 report called “The 2019 Living Income Standard for 100 Counties.”

The living income standard, on the other hand, “provides a more accurate picture of the income families need to make ends meet.”

According to the Living Wage Calculator created by Dr. Amy Glasmeier at the Massachusetts Institute of Technology, there are only three types of family structure for which $15 an hour would be enough to support a family.

“Raising the minimum wage to $15 an hour would be a huge and important first step, but still won’t ensure every family in North Carolina earns enough to put food on the table and pay for expenses like child care,” Kennedy said. “In addition to livable wages, workers need access to tools like predictable scheduling and paid leave, and policies that provide access to health care, food assistance, and affordable child care which give them the ability to plan, save, and make decisions that work best for their families.”

*The Budget and Tax Center is project of the North Carolina Justice Center, the parent organization of NC Policy Watch.

Aditi Kharod is a student at UNC Chapel Hill and an intern at NC Policy Watch.