The Biden administration's proposal to increase the minimum wage to $15 would contribute to a net loss of 1.4 million workers by 2025, according to a new report Monday from the Congressional Budget Office.
The finding will present major problems for Democrats, who have promised liberals an increase in the wage floor and are seeking to advance it as part of pandemic recovery legislation.
The proposed change would affect roughly 17 million workers in the average week of 2025 who earn the minimum wage, in addition to another 10 million workers who already earn near $15 an hour.
"Higher wages would increase the cost to employers of producing goods and services," the report reads. "Employers would pass some of those increased costs on to consumers in the form of higher prices, and those higher prices, in turn, would lead consumers to purchase fewer goods and services. Employers would consequently produce fewer goods and services, and as a result, they would tend to reduce their employment of workers at all wage levels."
The report also suggested that the wage hike, more than doubling the current rate, would contribute to employers accelerating investments in automation and machine labor.
Given the proposal's incremental increase, the CBO projects that initial wage gains would be beneficial: wage increases would "boost overall demand in the short term" and "reduce the drop in employment for several years."
The wage increase, despite increasing prices and unemployment, would also lift nearly 1 million people above the poverty line.
The incremental wage hike would also contribute an additional $54 billion to the federal deficit because of anticipated increases in the costs of goods and services and increased spending on unemployment insurance.
Democratic senators were hoping that a positive CBO report would give them the evidence they need to muscle the $15 minimum wage through the budget reconciliation process. Thanks to the Senate's Byrd Rule, measures passed through reconciliation are limited to items that do not "increase net outlays or decrease revenue during a fiscal year," according to a rules summary. The wage proposal appears to do both.
Vermont Sen. Bernie Sanders rebuffed the report's findings, however, and said it strengthened the case a $15 wage increase passing the Byrd rule.
"I find it hard to understand how the CBO concluded that raising the minimum wage would increase the deficit by $54 billion," Sanders said in a statement. "Two years ago, CBO concluded that a $15 minimum wage would increase the deficit by less than $1 million over ten years."
Sanders also said, though, that the finding that the minimum wage hike would affect the budget means that the legislation could proceed under the rules of reconciliation. In that scenario, the measure would likely have to be paired with a revenue-raising provision in order for it not to fall afoul of the rules.
The CBO has demonstrated that increasing the minimum wage would have a direct and substantial impact on the federal budget. What that means is that we can clearly raise the minimum wage to $15 an hour under the rules of budget reconciliation. pic.twitter.com/YyTEYkOugX— Bernie Sanders (@SenSanders) February 8, 2021
The report also cautioned that its projections are tempered by "a limited number of empirical studies" that were inconclusive when examining "whether employment responds differently to a higher minimum wage during a period of high unemployment."
The federal minimum wage was last raised in 2009, when it increased from $6.55 to the current $7.25, according to the Department of Labor. The rate lags behind much of Europe and other developed nations. Australia, for example, has a minimum wage of $14.17 — and Germany, Belgium, France, Ireland, and the United Kingdom all have minimum wages above $10.
There are 29 states with wages above the federal minimum wage, according to the National Conference of State Legislatures. California has the highest minimum wage in the United States, at $14.00 an hour. Washington, D.C., however, has a $15 minimum wage.