The Congressional Budget Office says that raising the minimum wage under Biden’s $15 an hour proposal would cost 1.4 million jobs over the next four years. The agency says the hike would also raise the deficit by $54 billion.
The report also makes the claim that it would lift 900,000 people “out of poverty”.
.The agency points out that:
- 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.
- In some limited circumstances, increasing the minimum wage could boost employment if employers had what is known as monopsony power—that is, bargaining power that allows them to set wages below the rates that would prevail in a more competitive market.
- Because increasing the minimum wage would shift income toward families with lower income, it would boost overall demand in the short term. Lower-income families spend a larger proportion of any additional income on goods and services than do families with higher income. That increased demand for goods and services would reduce the drop in employment for several years after the implementation of a higher minimum wage, CBO projects.
Reason.com Eric Boehm sums up the case why the minimum wage is an awful idea. He writes:
"Mandating that businesses increase labor costs at a time when many are struggling to survive hardly makes sense—indeed, the inclusion of a minimum wage hike in a bill that ostensibly aims to give "relief" from the pandemic is darkly ironic. Since most high-cost-of-living states have already implemented minimum wage hikes that go well above the federal floor of $7.25 per hour, any federal increase will fall hardest on places where businesses are least able to afford to pay it.
Biden's comments to O'Donnell seem to acknowledge the political reality that Democrats are now facing: They can pass a COVID-19 relief bill including another round of direct payments to American households, or they can sink that politically popular and symbolically important effort by demanding a minimum wage hike too."