Warnings about $15 minimum wage's effect on employment have merit, government study finds

The foodservice industry’s argument against increasing the federal minimum wage to $15 an hour is supported by a new study from the nonpartisan Congressional Budget Office (CBO), which found the rise would likely eliminate about 1.3 million jobs by 2025—or about 0.8% of payrolls nationwide—and possibly as many as 3.7 million.

Total family income would drop by as much as $9 billion annually in deflated terms, according to the federal researcher. 

But the report also supports the contention of wage-hike proponents that raising the pay floor from the current $7.25 an hour would lift a significant number of families out of poverty. Increasing the rate to $15 would push 1.3 million Americans above the poverty line in 2025, the CBO found. 

Wages would increase for at least 17 million people, and possibly for an additional 10 million who are currently earning more than $15 an hour, the data shows. 

The forecasts apply to the whole economic sector, with no breakdown by industry. 

The restaurant industry has maintained that more than doubling the minimum wage across all areas of the country would have a severe effect on unemployment. “CBO’s analysis notes that the $15 wage bill pending in Congress could trigger elimination of as many as 3.7 million local jobs, the majority of which are held by women," said Sean Kennedy, EVP of public affairs for the National Restaurant Association, in a statement. "We need a common-sense approach to the minimum wage that reflects the economic realities of each region, because $15 in New York is not $15 in Alabama.”

The CBO typically evaluates the impact on legislation under consideration in Congress, without making a recommendation. The research it produces is intended to be unbiased by political considerations. 

In the report that was issued today, the researcher looked at three options: raising the federal minimum wage to $15 an hour, increasing it to $12 an hour and mandating $10 an hour, or close to the $10.10 an hour that President Obama had suggested toward the end of his administration.

The data suggests an increase to $10 an hour would have the least detrimental effect on employment levels. The CBO indicated the worst-case scenario would be the elimination of 100,000 positions by 2025, and the more likely outcome would be no decrease in jobs at all. 

But it also found that a $10 hourly wage would raise the income of only 3.5 million workers, including those who already make at least $10 an hour, and that poverty levels would remain essentially constant. 

The number of families in poverty would decrease by 400,000 if the federal minimum wage is raised to $12 an hour, according to the CBO. About 11 million people would see a rise in income, but 300,000 jobs would likely be eliminated, it found. 

The agency acknowledged the high degree of uncertainty that’s involved with forecasting employment trends. The two key variables, it said, were how job growth would trend under existing laws and how employers might respond to an increase. 

Although the federal minimum wage has not changed since 2009, the floor has been raised in a number of cities, counties and states, with several moving in stages toward a $15 threshold. On July 1, as one of 22 jurisdictions where a wage increase took effect, San Francisco broke through the $15 barrier, to $15.59 an hour.

A $15 minimum wage has become a campaign issue in the 2020 presidential race, and bills calling for the so-called living wage have been introduced in both the U.S. House of Representatives and the Senate. The CBO report looks at the House version, which is very close to the measure that was introduced in the Senate by Bernie Sanders, I-Vt.