- The Raise the Wage Act has been introduced in Congress. If passed, it will increase the minimum wage to $15 by 2025.
- A report by the Congressional Budget Office warns it may lead to job losses.
- There are plenty of other estimates of what might happen and few of them agree on much.
Unless you haven’t been paying much attention to anything over the last few years, you are probably well aware of the “Fight for 15,” the movement to increase the minimum wage in the United States to $15 an hour. The slogan has appeared on countless signs in numerous recent strikes, and several presidential candidates have endorsed the campaign.
The movement has won a significant victory with the recent introduction of the Raise the Wage Act in Congress. If passed, it would increase the minimum wage to $15 an hour by 2025 and then tie it to the median income after that. Perhaps this is why two major studies on the subject came out this week with very different conclusions on what would happen if we did raise the minimum wage that much.
A tale of two studies
In response to the bill, the Congressional Budget Office (CBO), the non-partisan office that estimates the costs and benefits of bills being considered by the government, issued a report on the likely effects of raising the minimum wage to $15 an hour in the manner described above. According to the economists at the CBO, this would have a variety of effects on the economy.
It would directly increase the wages of 17 million people and indirectly increase the wages of 10 million more; since hikes in the minimum wage often cause those making just above the new minimum wage to get raises too. This would raise more than a million people out of poverty.
They also predicted that this would lead to the loss of 1.3 million jobs, as low-income work not worth $15 an hour would be phased out. Reductions in the nation’s output and increased prices were also on the table.
These estimates are based on 11 studies of what might happen if the minimum wage is increased to that level. Some of the studies predicted little to no effect on employment; others suggested the job losses might reach 3 million. The official CBO estimate represents the median point of these estimates.
Another study was also released earlier this week by economists at UC Berkeley. It found more evidence that the effects on employment caused by raising the minimum wage are minor. It did agree that there would be reductions in poverty, particularly in rural areas.
The findings of this report are not included in the CBO estimates as it was released too recently.
Complicating matters is a massive meta-study examining the effects of local level minimum wage increases over the last few decades. It concluded that minimum wage increases have little to no impact on employment rates.
What do other experts say?
As is often the case in economics, there are a slew of experts who argue for every possible interpretation of the data.
A survey from the Employment Policies Institute found that 72 percent of the economists interviewed thought increasing the minimum wage that much was a bad idea that would lower youth employment rates and harm small businesses.
However, there is also a nice long list of Ph.Ds who went public arguing for the exact opposite conclusions. The head economist of the Labor Department during the Obama years, Heidi Shierholz, directly criticized the new CBO estimate, saying that it “substantially overstates the costs” of a wage increase.
This kind of disagreement is all too common in economics. Nobel Prize-winning economist Paul Krugman probably put it best in his twitter post on the matter:
“Furthermore, this is no surprise: at this point there’s a large body of research on the effects of minimum wage hikes, which shows little if any employment effect in the U.S. context. This literature is very solid, because state actions provide natural experiments… But there’s steady drizzle of claims that minimum wage hikes do too kill jobs — a sort of minimum-wage skeptic literature — that continues no matter how strong the evidence gets and the usual suspects predict disaster every time a hike is proposed.”
So don’t expect any kind of agreement on this matter anytime soon, even if the data becomes increasingly clear as time goes by.
The economic effects of raising the minimum wage are highly debated. While the largest and most comprehensive studies on the subject suggest that the adverse effects are limited and the positive results quite notable, these findings remain controversial.