The Minimum Wage
Congress will soon decide whether to increase the federal minimum wage from $7.25 to $15 an hour (or some other figure). In general, Republicans are opposed and Democrats are supportive, but with some reluctance for a few, such as Senators Joe Manchin, and Kristen Sinema. Minimum wages have not been increased since 2009 and have generally fallen well below inflation over the past 40 years. https://usafacts.org/articles/minimum-wage-america-how-many-people-are-earning-725-hour/?utm_source=google&utm_medium=cpc&utm_campaign=ND-Jobs&gclid=EAIaIQobChMIj9iKmdSF7wIVYwnnCh1QCgxWEAMYASAAEgJ0kvD_BwE The benefits will be felt most strongly in Southern states which have no or low state minimum wage laws; however Florida via the voter initiative increased its minimum wages to $15, phased in over time, with a 2/3rds majority of the state’s voters last year.
CBO estimates that:
“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.”
In simpler terms, incomes for people on the bottom rungs of the wage scale would go up pretty significantly, but fewer people would have jobs as wages increase.
CBO reports that:
“Table 1. Federal Minimum Wages Under S. 53, the Raise the Wage Act of 2021
Date Federal Minimum Wage
June 1, 2021 $9.50
June 1, 2022 $11.00
June 1, 2023 $12.50
June 1, 2024 $14.00
June 1, 2025 $15.00
June 1, 2026 and later $15.00 plus an indexing adjustment.”
https://www.cbo.gov/system/files/2021-02/56975-Minimum-Wage.pdf
CBO projects the following impacts on the federal budget deficit:
“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).”
In short, there is some but a very minimal impact on the federal budget deficit over the next decade. Two thirds of Americans support raising the federal minimum wage, including a substantial majority of lower income Republican voters. https://www.pewresearch.org/fact-tank/2019/07/30/two-thirds-of-americans-favor-raising-federal-minimum-wage-to-15-an-hour/
The Senate Parliamentarian has ruled it does not qualify for budget reconciliation, which was fully anticipated. The choices now are to attach it to some “must pass” legislation like the annual defense bill, to go find 10 or more Republican votes by compromising with Manchin, Romney, et al to meet in the middle, or to finagle it beck into reconciliation with tax consequences for large companies and tax credits for small employers (a combo of carrots and sticks). If there were some reason to trust some of the Republican Senators, a bi-partisan compromise would be best, but their opposition to some pretty middle of the road Democratic nominees like Tanden or to a historic nominee like Debra Haaland makes them seem like a pretty untrustworthy bunch.
Prepared by: Lucien Wulsin
Dated: 2/25/21