Have you ever wondered what a national minimum wage of $15 would do to the U.S. economy? Well, if so, you are in luck because the Congressional Budget Office (CBO) just released a report on this very topic.
According to CBO’s report, The Budgetary Effects of the Raise the Wage Act of 2021, “If the Raise the Wage Act of 2021 was enacted in March 2021, the cumulative budget deficit over the 2021–2031 period would increase by $54 billion.” That is only the tip of the iceberg.
Aside from increasing the deficit, CBO projects a federal minimum wage of $15 per hour would also result in the following:
- “In 2025, when the minimum wage reached $15 per hour, employment would be reduced by 1.4 million workers (or 0.9 percent), according to CBO’s average estimate.”
- “CBO estimates that there is a one-third chance of that effect’s being between about zero and 1.0 million workers and a one-third chance of its being between 1.0 million and 2.7 million workers.”
- “Young, less educated people would account for a disproportionate share of those reductions in employment.”
- “Under the bill, Medicaid spending would increase because the effects of increases in the price of health care services and increases in enrollment by people who would be jobless as a result of the minimum-wage increase would outweigh the effects of decreases in enrollment by people with higher income.”
- “Spending for unemployment compensation would increase under the bill because more workers would be unemployed.”
- “Higher wages would increase the cost to employers of producing goods and services. 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.”
- “When the cost of employing low-wage workers goes up, the relative cost of employing higher-wage workers or investing in machines and technology goes down. Some employers would therefore respond to a higher minimum wage by shifting toward those substitutes and reducing their employment of low-wage workers.”
- “On average, over the 2021–2031 period, real investment would be slightly lower than it would be if current laws did not change, CBO estimates. That reduction in investment would reduce workers’ productivity and lead to further reductions in their employment.”
With the U.S. economy still reeling from the coronavirus pandemic, it would be quite unwise to double the national minimum wage. Instead of politicians arbitrarily determining how much American workers should be paid, perhaps it would be better to rely upon the forces of supply and demand to dictate compensation at a local level.