STATEMENT: On the CBO Report About a Federal Minimum Wage Increase

Marc Stier |

HARRISBURG—Marc Stier, director of the Pennsylvania Budget and Policy Center, made the following statement in regards to yesterday’s Congressional Budget Office (CBO) report about raising the federal minimum wage:

“The Congressional Budget Office (CBO), the agency that provides budget and economic analysis to Congress, released a report yesterday on the economic impact of raising the federal minimum wage to $15/hour by 2025. The main finding from this report, as we have found similarly in our own research, is that raising the minimum wage to $15/hour would benefit millions of low-wage workers across the country and that these benefits would far outweigh the costs.

“The benefits of increasing the minimum wage include: reducing poverty; increasing the wages of 27.3 million low- and low-to-middle income families; and shifting money from corporate profits to low-wage workers, thereby reducing inequality. This policy change would result in a reduction of the number of people living in poverty by 1.3 million, nearly half of whom are children ages 0-18. In 2025, low-wage workers would see annual earnings that are $44 billion higher. The average worker would earn $1,600 more per year after the increase to $15 (after taking into account predicted job losses). The CBO estimate of 27.3 million workers benefiting from such an increase also is potentially underestimated. The Economic Policy Institute (EPI) conducted a similar analysis and found that an increase to $15/hour would result in a pay increase for 40 million workers nationwide. Bottom line is that raising the minimum wage would make low-wage workers as a group tremendously better off.

“The CBO estimates one cost of increasing the minimum wage is that employment would decline by 1.3 million. Taking these CBO estimates at face value, that means that 93% of the lowest paid workers would remain employed at a job earning 12% more an hour, while only 7% would experience some job loss. However, as EPI points out, the CBO report substantially overstates these costs. The CBO failed to weight the highest quality academic studies that found little to no employment effects of a minimum wage increase. The CBO also hides in an appendix the important point that employment decline does not mean any worker would actually be worse off. Low-wage workers typically cycle in and out of jobs. In fact, each quarter more than 20% of the lowest-wage workers leave or start a job. Even if a low-wage worker works fewer months out of the year, the worker can potentially bring home more money because of the minimum wage increase.

“We know from our own research that raising the minimum wage to $15/hour by 2025 would have tremendous benefits for Pennsylvanians. Such an increase would benefit 2.01 million workers in our state: 1.05 million directly and 970,000 indirectly. This is an astonishing 34% of Pennsylvania’s workforce. By 2025, we estimate that the average affected worker would see an increase of $3.10/hour or $4,729 a year for full-time workers. This is an increase in income of 21.3%. Our analysis shows that an increase to $15 would result in $9.5 billion in yearly wages, much of which would be put right back into our economy. The last time Congress moved to raise the minimum wage was over a decade ago. The time has come to raise the wage.”