Politics & Policies, Report

Minimum Wage in US – CBO on the impacts of a $15 per hour by June 2025 on the federal budget

If enacted at the end of March 2021, the Raise the Wage Act of 2021 (S. 53, as introduced on January 26, 2021) would raise the federal minimum wage, in annual increments, to $15 per hour by June 2025 and then adjust it to increase at the same rate as median hourly wages. In this report, the Congressional Budget Office estimates the bill’s effects on the federal budget.

  • The cumulative budget deficit over the 2021–2031 period would increase by $54 billion. Increases in annual deficits would be smaller before 2025, as the minimum-wage increases were being phased in, than in later years.
  • Higher prices for goods and services—stemming from the higher wages of workers paid at or near the minimum wage, such as those providing long-term health care—would contribute to increases in federal spending.
  • Changes in employment and in the distribution of income would increase spending for some programs (such as unemployment compensation), reduce spending for others (such as nutrition programs), and boost federal revenues (on net).

Those estimates are consistent with CBO’s conventional approach to estimating the costs of legislation. In particular, they incorporate the assumption that nominal gross domestic product (GDP) would be unchanged. As a result, total income is roughly unchanged. Also, the deficit estimate presented above does not include increases in net outlays for interest on federal debt (as projected under current law) that would stem from the estimated effects of higher interest rates and changes in inflation under the bill. Those interest costs would add $16 billion to the deficit from 2021 to 2031.

The estimates in this report are based on CBO’s most recent economic forecast, which was released earlier this month. CBO estimated the budgetary effects using techniques that it has developed over the past two years. Those estimates are based on CBO’s estimates of the bill’s effects on the economic behavior of individuals and firms—which in this report refers to actions that change relative prices, the distribution of income, employment, and other economic factors.

Underlying the budgetary estimates are CBO’s projections of how pay would change for people directly or potentially affected by an increase in the minimum wage—that is, people who would otherwise have been paid hourly wages that were less than the proposed new minimum or slightly above it—and how changes in pay would affect the number of people employed.

  • From 2021 to 2031, the cumulative pay of affected people would increase, on net, by $333 billion—an increased labor cost for firms considerably larger than the net effect on the budget deficit during that period.
  • That net increase would result from higher pay ($509 billion) for people who were employed at higher hourly wages under the bill, offset by lower pay ($175 billion) because of reduced employment under the bill.

In an average week in 2025, the year when the minimum wage would reach $15 per hour, 17 million workers whose wages would otherwise be below $15 per hour would be directly affected, and many of the 10 million workers whose wages would otherwise be slightly above that wage rate would also be affected. At that time, the effects on workers and their families would include the following:

  • Employment would be reduced by 1.4 million workers, or 0.9 percent, according to CBO’s average estimate; and
  • The number of people in poverty would be reduced by 0.9 million.

This report provides the following details about the bill and CBO’s estimates of its effects on federal spending and revenues:

  • Background on the Raise the Wage Act of 2021;
  • Effects on spending for major health care programs;
  • Effects on spending for unemployment compensation;
  • Effects on spending for Social Security;
  • Effects on spending for nutrition programs;
  • Effects on other mandatory spending;
  • Effects on revenues;
  • Effects on discretionary outlays for wages of federal workers;
  • Effects on net spending for interest;
  • Uncertainty surrounding the budgetary estimates; and
  • How CBO’s analysis of budgetary effects has changed.

The report also provides the following information about changes in economic behavior underlying those estimates and about CBO’s analytical methods:

  • Effects on employment;
  • Effects on wages of affected workers;
  • Effects on the distribution of family income;
  • Effects on real (inflation-adjusted) output;
  • Effects on prices;
  • Effects on the distribution of labor and capital income;
  • Effects on interest rates;
  • CBO’s economic modeling approach; and
  • Comparisons with CBO’s July 2019 analysis.

 

Chosen excerpts by Job Market Monitor. Read the whole story @ The Budgetary Effects of the Raise the Wage Act of 2021 | Congressional Budget Office

The reply by the Economic Policy Institute

There are essentially two main analytical differences between our findings and the CBO’s: CBO models significant job loss due to the minimum wage increase while we do not; and CBO models how the minimum wage increases are “financed” and assumes that a substantial part of this financing occurs through price increases that are mostly paid by those with high incomes and reductions in profits on the part of firms that employ low-wage labor.

We believe that the CBO’s assumptions on the scale of job loss are just wrong and inappropriately inflated relative to what cutting-edge economics literature would indicate. The median employment effect of the minimum wage across studies of low-wage workers is essentially zero, according to a 2019 review of the evidence.3 Another recent review found that the median employment effect on workers directly affected by the minimum wage is less than half the size of what CBO assumed in its 2019 analysis.4 CBO’s exaggerated job loss assumptions account for 80% of the total increase in mandatory outlays.5

On the issue of how minimum wage increases are financed, we should note that the CBO’s modeling assumptions indicate that a higher minimum wage is extraordinarily effective in redistributing income from those with very high incomes towards low-wage workers. This is because the CBO assumes that most of the increased labor earnings for low-wage workers are paid for by reduced profits and small price increases, the bulk of which are paid by high-income families whose average annual family income is well over $200,000.6 In short, the CBO’s modeling assumptions—which drive a large part of their finding that higher minimum wages will increase the federal budget deficit—show that a higher minimum wage is extraordinarily effective policy in reversing the generation-long rise in income inequality in the United States. As they note in their analysis: “Although total nominal income would be roughly unchanged in CBO’s estimate, labor income would increase while capital income would decrease. Labor income tends to be more heavily taxed. Income would also shift toward lower-income people and away from higher-income people under the bill.”

The CBO analysis also highlights the multiple significant channels through which a higher minimum wage would affect the federal budget. In looking just at revenues, for example, they note: “The bill would increase revenues, on net, from 2021 to 2031. That net effect would be the result of a number of factors that worked in opposite directions.” Their estimates on the effect of a higher minimum wage on the spending side of the budget includes 14 separate line items. This is, in short, a fiscally significant policy change.

One fiscal impact highlighted by CBO is particularly noteworthy—the cost of boosting pay for care workers whose work is financed by Medicaid. CBO assumes the higher wage costs will translate into higher Medicaid payments through negotiations between providers and state Medicaid agencies. We certainly hope they are right, and, since the costs are already accounted for in the cost estimate, we urge state policymakers to hold Medicaid services constant in the face of higher labor costs. The care workforce provides extraordinarily valuable services yet is among the most underpaid in the economy, due largely to historical legacies of racial and gender discrimination. The pay increase this workforce would get under a higher federal minimum wage would be among the most valuable outcomes of making this law.

In the end, the CBO analysis confirms what we already knew: A higher federal minimum wage will significantly boost earnings and living standards for low-wage workers—especially those hit hardest by the COVID-19 pandemic—and it will have direct and significant fiscal effects.

Chosen excerpts by Job Market Monitor. Read the whole story @ CBO analysis confirms that a $15 minimum wage raises earnings of low-wage workers, reduces inequality, and has significant and direct fiscal effects: Large progressive redistribution of income caused by higher minimum wage leads to significant and cross-cutting fiscal effects | Economic Policy Institute

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Minimum wage for most tipped workers in US – $2.13 an hour (video)

Economic analyst and former tipped worker David Cooper explains how tipped workers get paid. The minimum wage for most tipped workers is only $2.13 an hour. That means the customer is on the hook for paying the bulk of these workers’ wages. via The truth about how tipped workers get paid – YouTube. Related Posts … Continue reading

US – The federal minimum wage for tipped workers has been $2.13 since 1991

The federal minimum wage for tipped workers has been $2.13 since 1991. That pay rate tends to get lost in the larger debate over whether to raise the national minimum wage for nontipped workers, which is $7.25 an hour. Under federal law, if tips dont bring employees up to the level of the standard minimum … Continue reading

IMF on Minimum Wage in US – Should be increased

The International Monetary Fund on Monday cut its forecast for U.S. economic growth this year, warned of sluggish growth for years to come, and made a bunch of suggestions for getting Americas economic house in order — including raising the abysmally low federal minimum wage of $7.25 an hour.”  [G]iven its current low level compared … Continue reading

Minimum Wage Earners in US – Who are they ?

All the statistics here apply to those who would be affected by the proposed increase to raise the federal minimum wage from $7.25 to $10.10. The analysis also includes a number of workers making slightly above $10.10, who, history suggests, would receive a raise if the minimum wage were increased. Minimum-wage workers are older than … Continue reading

The Economics of Minimum Wages – There has been a large shift in the weight of academic opinion

A generation ago, the vast majority of economists would have said that a rise in the minimum wage inevitably costs jobs. This has changed, with two strands of research having the biggest impact. In the United States, the work of David Card and Alan Krueger, then both at Princeton University, shattered the cosy consensus and argued that the actual evidence linking the minimum wage … Continue reading

Minimum Wage Increase in US – Would benefit 4.7 million moms and 2.6 million, working dads finds EPI

About 22 million moms are working in the United States today. Over one-fifth of all working moms would get a raise if we increased the minimum wage to $10.10. That’s 4.7 million moms and their families who would see an increase in wages with that modest minimum wage increase. And, not to be left out, 11.6 … Continue reading

Minimum Wage in Pennsylvania – More than a million would benefit from an increase

The impact of a minimum-wage hike in Pennsylvania would benefit more than 1 million workers from all areas of the state, according to a new report from the Keystone Research Center. KRC Labor Economist Mark Price co-authored the study. He says boosting the state’s minimum wage to $10.10 an hour by 2016 would have a … Continue reading

Philippine – The minimum wage under the Aquino administration (Infographic)

While the Department of Labor and Employment (DOLE) has hiked wages annually, the yearly increase only came in measly P20 increments. As a result, the minimum wage in the National Capital Region only rose by 4.87 percent on average each year. Several labor groups have repeatedly called on the President to approve an across-the-board nationwide … Continue reading

US – Millionaires unite to defeat minimum wage

A broad-based coalition of millionaires converged on Washington today to defeat a bill that would have increased the minimum wage for American workers to $10.10 an hour.  Leaving behind their mansions and yachts, the millionaires were motivated by what they saw as an existential threat to the country, Mitch McConnell, a spokesman for the millionaires, … Continue reading

US – Is The White House Consistent on Minimum Wage and Interns Pay?

Even as it pushes Congress to raise the minimum wage to $10.10 per hour, the Obama administration is resisting calls to pay interns who serve in the White House.  The White House declined multiple opportunities to comment on whether it would rethink its position on not compensating the roughly 300 interns who work there each … Continue reading

A Million Veterans Would Benefit from a Minimum Wage Increase

We ask a lot of our armed forces. They serve our country in some of the most dangerous environments and difficult situations faced by any American. Yet having endured those experiences, too many veterans returning to civilian jobs find themselves in work that barely pays enough to live on. In fact, of the roughly 10 … Continue reading

Minimum wages in US – Some States act (A map)

Odds remain low that Congress will raise the $7.25 federal minimum wage anytime soon. But the issue will be revisited in coming days as the Senate takes up a bill to increase it to $10.10 an hour. And President Obama and congressional Democrats plan to push the issue on the campaign trail ahead of the … Continue reading

Germany – Introducing a national minimum wage

Germany‘s coalition government agreed Wednesday to introduce a national minimum wage of 8.5 euros (11.72 dollars) an hour from January next year, despite strong opposition from the business sector.  Legislation for the minimum is expected to be passed by parliament by July. “It will represent more social justice in our country,” said Labour Minister Andrea … Continue reading

US – 260,000 graduates in minimum wage jobs

About 260,000 people who had a college or professional degree made at or below the federal minimum wage of $7.25 per hour last year, according to the Bureau of Labor Statistics.  Things may be looking up a little, though — it’s the smallest number since 2008. The worst year was 2010, when the number skyrocketed … Continue reading

Minimum Wage and Poverty in US – The income boost would be less than $1.00 for each $1.00 increase in gross earnings writes Congressional Research Service

Pending before Congress is legislation (S. 1737 and H.R. 1010) that would raise the federal minimum wage from its current $7.25 per hour to, ultimately, $10.10 per hour. The minimum wage would be adjusted for inflation thereafter. Whether the minimum wage or alternative policies, namely government-funded earnings supplements such as the Earned Income Tax Credit … Continue reading

Minimum wage in US – Over 500 economists sign a petition to the President against an increase

The “recovery” from the Great Recession has been anemic. Business growth, job creation, and consumer spending remain tenuous. Since the official trough in June 2009, median income has fallen, real wages have barely risen, unemployment remains elevated, and because so many Americans have left the workforce entirely, the fraction of the population working is below … Continue reading

Minimum Wage in US / Much of the empirical evidence suggests that it fails to alleviate net poverty says CATO

Numerous empirical studies have examined the effect of past minimum wage increases on poverty. In a 2007 peer-reviewed study, Richard Burkhauser of Cornell University and I examined Census data from 1979 to 2003 to estimate the effects of minimum wage increases on state poverty rates. We found no evidence that minimum wage increases were effective … Continue reading

US – Yellen backs CBO’s minimum wage report

Federal Reserve Chairwoman Janet Yellen in Senate testimony subtly slapped the White House, which criticized a recent Congressional Budget Office report on the minimum wage, saying it didn’t represent a consensus among economists. The CBO report said raising the minimum wage would lift 900,000 people out of poverty, but would also lead to the elimination … Continue reading

US – The White House economic case for raising the minimum wage

The minimum wage helps support family incomes, reducing inequality and poverty, but as a slide deck from the Council of Economic Advisers shows, as the real value of the minimum wage has been allowed to erode, it has stopped serving this important purpose. via The Economic Case for Raising the Minimum Wage. Related articles Minimum Wage … Continue reading

Minimum Wage Estimated Impacts in US / CBO Director defends position

A number of economists from the White House and beyond have criticized a CBO report on the effects of potentially boosting the minimum wage to $10.10 an hour. But CBO Director Douglas Elmendorf isn’t backing off. Congressional Budget Office Director Douglas Elmendorf defended a controversial report on the minimum wage Wednesday, amplifying a debate that … Continue reading

Minimum Wage Increase in US / The CBO’s estimates of the effects on employment and family income

Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers … Continue reading

Does raising the minimum wage = job losses? | rabble.ca

Recently Ontario has decided to raise its minimum wage from $10.25 to $11, a full 16 per cent below the poverty line. Does increasing the minimum wage = job losses? Happily, Ontario has some recent history to rely on in answering this question. The province raised the minimum wage four times between 2007 and 2010, … Continue reading

Minimum Wage in US / Two-thirds of the federal minimum wage earners are women

Hiking the minimum wage has become the issue-of-the moment for Democrats, and as with many other major policy initiatives of late, they’re touting it as legislation that has a greater impact on women. It’s a tactic they embraced in the run-up to the 2012 race, as the “War on Women” narrative took hold. But now … Continue reading

US / 72 percent approve minimum wage hike, including a majority of Republicans pool says

Voters support raising the federally mandated minimum, 72 percent to 27 percent, including a majority of Republicans, who support it 52 percent to 45 percent, according to a Quinnipiac poll out Wednesday Continue reading

Minimum Wages and Living Wages in US / A map

The map and chart below show how close each state’s new minimum wage comes to reaching a living wage, meaning one in which a worker can cover food, housing, utilities and other basic expenses. In some cases it\’s not very far at all: Many of the states that raised their wage floors Wednesday still have … Continue reading

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