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The U.S. House of Representatives has passed a bill to take the federal minimum wage to $15 an hour in stages. The final stage would be in 2025. Since the current federal number is $7.25, the new figure would be a huge increase. However, there is evidence that as many as 3.7 million people could lose jobs because companies may be unable to afford higher payroll costs.
The debate over whether lifting the minimum wage will mean jobs reductions has gone on for years. Several large companies, including Walmart and McDonald’s, say it would put tremendous downward pressure on the margins. Many smaller firms say the higher wage will put them out of business. Several states have minimum wages well above the current federal level, but there is no powerful evidence that the layoff theory has been proven in these places.
The Congressional Budget Office (CBO) studied the $15 minimum wage in a paper titled “The Effects on Employment and Family Income of Increasing the Federal Minimum Wage.” The media covered the results extensively, with a focus on the forecast that 1.3 million Americans could lose their jobs if Congress approved the increase and the president signed it into the law. The 1.3 million job cuts are the middle case of the analysis. However, the CBO put the upper end of its forecast of lost jobs at 3.7 million.
The positive effect of an increase in the minimum wage is the increase in total income it would bring to many workers. The CBO’s experts wrote, “In an average week in 2025, the $15 option would boost the wages of 17 million workers who would otherwise earn less than $15 per hour. Another 10 million workers otherwise earning slightly more than $15 per hour might see their wages rise as well.” The authors added that the number of jobs that could be lost would be between zero and 3.7 million. People who are paid by the hour often have jobs that are inherently less secure than others — these are the jobs with the worst (and best) job security.
The 3.7 million figure would be approximately the same as the number of jobs added by the economy in the past year and a half. Such a loss would certainly drive the unemployment rate well above its current level at 3.7%.
The bill to raise the federal minimum wage still has hurdles to clear. However, the effects of approval would not all be positive. Without question, though it would raise the level of compensation of people who hold the 25 lowest paying jobs in America.
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