The Congressional Budget Office has released another minimum wage study, The Effects on Employment and Family Income of Increasing the Federal Minimum Wage. Here’s are the major bullet points from the “at a glance” overview:
The federal minimum wage is $7.25 per hour for most workers. The Congressional Budget Office examined how increasing the federal minimum wage to $10, $12, or $15 per hour by 2025 would affect employment and family income.
In an average week in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than $15 per hour. Another 10 million workers otherwise earning slightly more than $15 per hour might see their wages rise as well. But 1.3 million other workers would become jobless, according to CBO’s median estimate. There is a two- thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers. The number of people with annual income below the poverty threshold in 2025 would fall by 1.3 million.
The $12 option would have smaller effects. In an average week in 2025, it would increase wages for 5 million workers who would otherwise earn less than $12 per hour. Another 6 million workers otherwise earning slightly more than $12 per hour might see their wages rise as well. But the option would cause 0.3 million other workers to be jobless. There is a two-thirds chance that the change in employment would be between about zero and a decrease of 0.8 million workers. The number of people with annual income below the poverty threshold in 2025 would fall by 0.4 million.
The $10 option would have still smaller effects. It would raise wages for 1.5 million workers who would otherwise earn less than $10 per hour. Another 2 million workers who would otherwise earn slightly more than $10 per hour might see their wages rise as well. The option would have little effect on employment in an average week in 2025. There is a two- thirds chance that the change in employment would be between about zero and a decrease of 0.1 million workers. This option would have negligible effects on the number of people in poverty.
Note the similarity fo this from CBO’s 2014 report:
Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.
In other words, if you raise the minimum, those making below or slightly above the proposed minimum will see a wage increase if they’re able to hold their jobs. Those who are laid off will be worse off. And the steeper the increase, the larger the effect. The jump to $15 carries known risks. We’ve known that for a while.
As the new CBO study says,
The two main sources of uncertainty about the changes in employment are uncertainty about wage growth under current law and uncertainty about the responsiveness of employment to a wage increase.
The Seattle Times reports on one example of the “responsiveness of employment to a wage increase.”
Restaurants Unlimited, a longtime Seattle-based company with 35 upscale eateries including well-known names like Palomino, Cutters Crabhouse and Horatio’s, sought Chapter 11 protection Sunday and said minimum wage hikes were partly to blame…
“Over the past three years, the company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage,” Bagley said. “As a large employer in the Seattle metro market, for instance, the company was one of the first in the market to be forced to institute wage hikes.”…
Restaurants Unlimited employs about 1,885 part-time workers and 168 full-time restaurant staff as well as 50 salaried employees at its headquarters in Seattle.
At least some of those jobs are now at risk.
Other factors are also at play, as Eric Boehm reports,
But it’s important to remember that any negative consequences—regardless of what they might be—will fall most heavily on workers with fewer skills or little experience. Someone who has a hard time finding a job that pays $8 an hour will be completely out of luck if employers are required to hire only workers who are worth $15 an hour.
It’s also important to remember that low-wage workers aren’t always from low-income families. Think of teenagers working summer jobs, for example, or students working part-time while they pursue higher education. In other words, some of the beneficiaries of higher minimum wages aren’t really what is traditionally thought of as “poor”—and the truly needy are more likely to lose out on entry-level jobs.
Having the feds set a minimum wage rate introduces additional problems. The law’s consequences in poorer, rural states will not be the same as its consequences in places with a higher cost of living. In other words, a $15 minimum wage will do more damage in Mississippi than in New York City. Forcing all American businesses to pay the same minimum wages makes little sense.
The report comes as some in Congress are proposing increasing the federal minimum wage, which seems highly unlikely in the current political environment. Those who like to dig into minimum wage research, though, will. find a lot of useful data in the CBO report.