CBO Highlights the Dangers of a $15 Minimum Wage, Again

The debate around raising the federal minimum wage to $15 an hour seems like Groundhog Day. Each legislative session, labor advocates and progressive politicians advance legislation to raise the federal minimum wage from its current $7.25 to $15 an hour. Representative Robert Scott (D-VA03) has introduced the Raise the Wage Act twice, first in 2019 and most recently in 2021. Chair of the Senate Budget Committee, Bernie Sanders (D-VT), made a $15 an hour minimum wage a central plank of his 2016 and 2020 presidential campaigns and recently issued a statement saying he sought to raise the federal minimum wage through budget reconciliation in the absence of Republican support.

Each time a legislative proposal to increase the federal minimum wage to $15 an hour is made, the non-partisan Congressional Budget Office follows with an economic impact statement that highlights the unintended economic damage of these legislative plans. Despite these warnings, advocates vow to press ahead with their goals against the advice of an impartial and non-partisan government agency. For those advocates seeking to raise the minimum wage to $15 an hour to just accept the CBO’s recommendation and move on to pursuing policies that put workers first.

In the most recent warnings, the CBO suggested raising the federal minimum wage would reduce employment by 1.4 million people and see American workers lose $175 billion in lost pay as companies reduce hours, cut jobs, and embrace technology. Most of these jobs would be lost because the wage hike would “increase to employers the cost of producing goods and services.” Additionally, the CBO warned these increased costs would be passed onto consumers, leaving them with long term reduced purchasing power. The CBO’s warning that 1.4 million could lose their jobs represents an increase from the CBO’s 2019 estimate of 1.3 million job losses.

Unfortunately, these job losses would most likely affect societies most vulnerable, namely women, those with limited education, and those with little work history. The Employment Policies Institute (EPI) estimated 32.5% of jobs lost because of a $15 an hour federal minimum wage would be felt by workers aged between 16 and 19. Additionally, EPI has estimated that women, who make up 59% of minimum wage workers, would also be disproportionately affected compared to men, who make up 41% of minimum wage workers. Finally, studies show the vast majority of workers are either high school graduates with no college or those with less than a high school diploma.

The fact that women, the young, and those with limited education disproportionality depend on minimum wage jobs means that when jobs are lost, they would be the ones facing the consequences of lost income, not men, those with degrees, or those with an established work history. This view has been re-affirmed by the American Consumer Institute which showed “young workers just entering the labor force and minority groups are the most disadvantaged by these regulations.”

The CBO also warned increasing the minimum wage to $15 per hour would have severe consequences for American consumers’ long-term prosperity. In their latest analysis, the CBO suggested increasing the minimum wage would increase the federal deficit by $54 billion. This new estimate marks a significant departure from the 2019 study that found raising the minimum wage would only have a limited effect on the federal deficit.

The CBO’s warning that raising the minimum wage could increase the deficit should be particularly concerning for American consumers because it would mean future administrations would have to raise taxes to plug the fiscal hole. For consumers, these increased taxes would mean less purchasing power as the government takes more of an individual’s income, reducing spending power and weakening long-term economic prosperity. This reduced demand would undoubtedly have a multiplier effect that introduces a cycle of reduced business profitability and disincentivizes businesses from developing new and innovative products.

The fear of a vicious economic circle is not abstract but became a central part of the CBO’s recent report. The CBO stated reduced demand for products, owing to higher prices, “would lead consumers to purchase fewer goods and services,” causing companies to “produce fewer goods and services.” While not going into as much detail in 2019, the CBO did warn in its first report that a $15 an hour minimum wage would “reduce the nation’s output.”

Despite the consistent warnings from the CBO about the economic dangers of raising the minimum wage, it seems labor activists will continue to pressure politicians to pursue policies that will not only cost jobs but will also disincentivize economic output. This is not to say there is not an economic case to be made for raising the minimum wage above the federal level, just that the $15 an hour proposal would cause significantly more harm than good.