Economy & Business

The Hidden Costs of Biden’s $15 Minimum Wage

A supporter holds a sign during a rally to celebrate the state of New York passing into law a $15 minimum wage, April 4, 2016. (Lucas Jackson/Reuters)
A new CBO report highlights the fiscal impact of Biden's proposed minimum-wage hike.

The Biden administration’s $1.9 trillion COVID-19 relief proposal included a handful of partisan measures completely unrelated to pandemic relief, including increasing the federal minimum wage to $15 an hour from the current level of $7.25 an hour. Lacking sufficient bipartisan support to meet the 60-vote majority required under the Senate’s filibuster rules, Democrats are using a legislative process known as budget reconciliation to pass their bill. Reconciliation requires a simple majority vote for passage but is limited to bills on spending, revenue, and the federal-debt limit. A minimum-wage bill clearly does not qualify.

The problem for Democrats is the Senate’s “Byrd rule,” under which the nonpartisan Senate parliamentarian is authorized to strip “extraneous” provisions out of such legislation. Provisions are extraneous if they fail to produce a change in outlays or revenues or produce a change that is “is merely incidental.”

President Biden recently conceded that a minimum-wage increase is an unlikely candidate for a budget reconciliation. In a pre-recorded interview on Friday with CBS host Norah O’Donnell, Biden stated that he didn’t believe the minimum-wage hike was “going to survive” as part of the bill. You could almost hear America’s struggling small businesses emit a sigh of relief.

Senate Democrats tacitly acknowledged the problem on Friday when they used reconciliation to pass a COVID-19 relief bill that did not include the $15 minimum-wage hike. However, the vote was nonbinding and such a provision could be added to subsequent versions of the bill.

Never fearful of plowing sand, even with an abundance of serious problems to address, the newly appointed chair of the Senate Budget Committee, Socialist senator Bernie Sanders (I., Vt.), continues to push for the wage hike. On Sunday, Sanders told CNN’s Jake Tapper, “We have a room full of lawyers working as hard as we can to make the case to the parliamentarian that, in fact, raising the minimum wage will have significant budget implications and, in fact, should be consistent with reconciliation rules.”

In his attempt to overcome the Byrd rule, Sanders has cited new studies from two sources with a history of highly partisan research in support of minimum-wage hikes. Authored by the Economic Policy Institute and Berkeley economist Michael Reich these studies claim that a $15 federal minimum wage would positively impact the federal budget by tens of billions of dollars per year through increased tax revenue and reduced costs for public-assistance programs. Reich claims hiking the minimum wage to $15 an hour by 2025 would positively impact the federal budget to the tune of $65.4 billion a year.

But would that really happen? Clearly not.

On Monday, the nonpartisan Congressional Budget Office issued a report stating that, should Sanders’ $15 minimum-wage bill become law, “the cumulative budget deficit over the 2021–2031 period would increase by $54 billion.” That sure doesn’t sound like a budget windfall.

In addition, the CBO’s average estimate was that, in the year the minimum wage hit $15, “the effects on workers and their families would include” a reduction of 1.4 million jobs. That’s a lot of jobs for an administration that claims it will focus on “getting back to full employment, as quickly as possible” because it “will make a major difference in the lives of tens of millions of people, particularly those most at risk of being left behind,” according to a White House blog post by Council of Economic Advisers members Jared Bernstein and Heather Boushey.

So how would a $15 minimum wage impact those people “most at risk of being left behind”? According to the CBO’s report, “young, less educated people would account for a disproportionate share of those reductions in employment.” That’s not a surprise.

In January, economists David Neumark and Peter Shirley issued a study on the employment impact of minimum-wage increases. It assembled the “entire set of published studies” and “identified the core estimates that support the conclusions from each study.” It found “a clear preponderance” in the literature that increasing the minimum wage negatively affects employment, particularly with respect to “teens and young adults as well as the less-educated.”

Sanders’ claim that a $15 minimum wage would reduce budget deficits is based on partisan research, at best grossly misleading and at worst simply wrong. Including such a provision in a budget-reconciliation bill would make a mockery of the Byrd rule and open up the process to significant future abuse. It would also seriously reduce job opportunities for the people who need them most.

Perhaps Democrats might consider spending more time on the negative impact their proposed federal minimum-wage hike would have on the teens, young adults, and the less-educated that the CBO and NBER studies found are most adversely affected by increasing the minimum wage — particularly those in poorer parts of the country. Let’s not forget we are recovering from a recession that disproportionately hurt businesses with hourly workers. That’s one reason we need a COVID-19 relief bill in the first place.


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