Three Reasons a $15 Minimum Wage Won't Actually 'Kill' Tons of Jobs

Headlines about a wage hike putting Americans out of work are misrepresenting a major new report.
July 10, 2019, 2:06pm
Protesters hold up a banner reading, "Fight for $15 and a union."
Minimum wage protesters in 2015. Photo by Victor J. Blue/Bloomberg via Getty

On Monday, the Congressional Budget Office (CBO), the federal agency responsible for evaluating the economic effects of legislation, dropped a major new report on a bill that would hike the federal minimum wage as high as $15 an hour. Currently, it’s set at $7.25, though state and local minimum wages are generally higher. The report was largely good news for $15-an-hour proponents: It found that after coming into full effect in 2025, the Raise the Wage Act would increase incomes for 27 million workers and lift 1.3 million people out of poverty while slightly redistributing income from America's richest families to those in lower income brackets.

But Republicans and other opponents of minimum wage increases were more focused on another data point: The CBO also said that a $15-an-hour minimum wage would cost the country 1.3 million jobs (it’s just a coincidence that this is the same number as those who would get out of poverty). That scary figure was plastered all over headlines and strewn about on social media, suggesting that a $15 minimum wage was a controversial policy with serious trade-offs. But a closer look at what the CBO said, and insight from economists who study minimum wage increases, actually paint a much rosier picture.

1.3 million jobs is just 0.8 percent of U.S. jobs

Talking about those job losses using a raw number like 1.3 million makes it seem like that would be a tremendous impact on the labor market. But really, that represents just 0.8 percent of all workers—and 7 percent of workers who earn less than $15 an hour under the current system, according to the CBO. That wouldn't be any comfort to the actual people who lost work due to this bill, but:

This doesn't mean 1.3 million people will have jobs yanked away from them

What the CBO actually says about the job losses is, "According to CBO's median estimate, about 1.3 million workers who would otherwise be employed would be jobless in an average week in 2025."

These are low-wage workers who tend to switch jobs frequently and may be in and out of work in a given year. A higher minimum wage might make it more difficult for these workers to find jobs, or their hours might get reduced—but they would be getting paid more per hour, which could more than offset their reduced employment. "An employment decline as a result of a minimum wage increase doesn't necessarily mean any worker is actually worse off," Heidi Shierholz, an economist at the left-leaning Economic Policy Institute, said in a statement (italics are hers). "Consider the case of someone who now works a full-time job at $7.25 an hour for ten months a year, but can only find work for eight months when the minimum wage is increased to $15. This worker experiences a strong negative employment impact of the minimum wage increase, but actually has substantially higher annual earnings."

Michael Reich, an economist at the University of California who studies minimum wage, was critical of the CBO report on similar grounds: "It neglects to make clear that its estimates imply only that low-wage workers, who frequently churn between jobs, might have jobs a few less hours per year; hardly any will lose jobs on a permanent basis," he said.

The CBO’s numbers might be off

The effects of minimum wage increases are notoriously difficult to predict and are an ongoing subject of debate among economists. This is reflected in the fact that 1.3 million job losses is the median estimate from the CBO, which said that there's a two-thirds chance the number would actually be anywhere from zero to 3.7 million.

The federal agency came up with this figure by reviewing a vast number of studies on the effects of minimum wage increases, which have produced a wide range of results. Don Grimes, an economist at the University of Michigan, said that the 1.3 million estimate sounded reasonable, and predicted that the consequences would be acute in places where a large increase in the minimum wage would mean price increases for services that local residents couldn’t afford to pay. "A $15-an-hour minimum wage is going to cost jobs in rural Mississippi and many other lower-income communities," he said. (Grimes added that he favored a minimum wage higher than the current levels, but one that varied geographically to account for local conditions.)

But Shierholz, as well as Arindrajit Dube, another economist who studies the minimum wage, say that the CBO should have paid more attention to more recent and higher-quality studies about wage hikes that showed lower effects on employment. For instance, in a recent paper co-authored by Reich that looked at 51 wage increases in low-wage counties spread across 45 states, the researchers wrote, "We do not detect adverse effects on employment hours or weeks worked."

In the end, the benefits of a wage hike don’t have anything to do with the number of jobs in the U.S.

If the debate over a minimum wage hike centers on how many jobs will really be "lost," that in itself is going to be a win for people who oppose it. Conservative-penned columns in the Wall Street Journal, the Republican Party's Twitter account, libertarian Reason magazine, and a Politico newsletter presented by the anti-wage increase National Restaurant Association all highlighted the job-loss numbers, for obvious reasons. (The Politico newsletter included a range of viewpoints, but led with the 1.3 million lost jobs figure.) Bloomberg columnist Karl W. Smith had a more subtle point, arguing that a higher minimum wage would keep marginalized people like former prison inmates and disabled people from getting jobs.

None of this has anything to do with the problem a higher minimum wage is meant to address, which is that low-wage workers often have to depend on government programs like food stamps, can't afford housing, and are forced into dire life circumstances. At a congressional hearing for the Raise the Wage Act, Terrence Wise, a fast-food worker and wage activist from Kansas City, described going through periods of homelessness even though he and his wife both worked: "Try waking up in the morning and getting ready for work and school in a parking lot with your family of five. That's something a parent can never forget and a memory you can never take away from your children. You should never have multiple jobs in the United States and nowhere to sleep."

Currently, the U.S. has a ton of jobs and extremely low levels of unemployment, but wages are barely going up at all, which has led to an uptick in strikes and labor actions as workers attempt to capture a larger share of a growing economy. A $15 minimum wage would address concerns that many people like Wise have.

Talk of job loss is designed to distract from just how much Americans want a raise

When reading headlines and pieces of punditry about how this scary minimum wage bill will kill 1.3 million or 3.7 million jobs, it's important to keep in mind that a lot of those talking points are being pushed by people with business interests and reasons to avoid giving their workers a raise. Public sentiment is overwhelmingly on the side of a minimum-wage increase.

One poll from January found that 55 percent of registered voters wanted to raise the minimum wage to $15, including 36 percent of Republicans; 70 percent of Republican voters said it should be increased from the current level. Perhaps because of this broad support, the Democratic Party, divided on issues ranging from the Green New Deal to impeachment, is largely unified on demanding a $15 minimum wage. The policy was part of the 2016 party platform, it's supported by even moderate 2020 presidential candidates, and the Raise the Wage Act has 31 Democratic cosponsors in the Senate and 205 in the House.

This enthusiasm doesn't mean the $15 minimum wage everyone is arguing over this week will actually pass—Republicans aren't offering a compromise that would raise the wage to $10 or $12, which the CBO estimated would have much smaller effects on employment. The GOP is offering nothing. As the 2020 election approaches, Democrats clearly want to make their case as simple as possible: They'll give America a raise, and Donald Trump won't.

"I think if nothing else, people can see that in the House we're able to pass the minimum wage [increase]," Virginia Congressman Bobby Scott, the bill's chief sponsor in the House, said during a Monday press call. "It's extremely popular and I'd love to campaign on it."

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