Minimum Wage Proposal Would Reduce Poverty but Cost Jobs, CBO Says

Raising the federal minimum wage to $17 an hour by July 2029 could increase wages for more than 18 million people, but also put about 700,000 Americans out of work, according to a study by the Congressional Budget Office (CBO) that was released in December.

The report was prepared in response to a request by Sen. Bill Cassidy, R-La., ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, to analyze the Raise the Wage Act of 2023.

The legislation was introduced in July by Sen. Bernie Sanders, I-Vt., chairman of the HELP Committee, and Rep. Robert “Bobby” Scott, D-Va., ranking member of the House Education and the Workforce Committee.

In addition to gradually increasing the federal minimum wage, the legislation would gradually raise subminimum wages for tipped workers and workers with disabilities before eliminating subminimum pay entirely.

The CBO found that from 2024 to 2033, the cumulative pay of affected workers would increase, representing an increased labor cost for businesses. The positive impact of higher pay for people who were employed below, at or slightly above the minimum wage would be partially offset by reduced employment for others.

The $17 minimum wage would raise pay for about 8.9 million workers who otherwise would have projected wages below the minimums specified in the bill during an average week in 2029. Another 9.7 million workers during that average week would otherwise have wages that were slightly higher than the proposed minimums and would likely be affected by the wage increase.

“If the bill was enacted and the minimum wage rose, wages for many of those workers would increase as employers sought to retain some of the differences in pay that had previously existed among those workers,” said Phillip Swagel, director of the CBO, a nonpartisan agency that provides budget and economic information to Congress.

The higher federal minimum wage would also lift some 400,000 workers out of poverty, according to the CBO study. At the same time, the average estimate is that about 700,000 workers would lose their jobs. The median estimate is a reduction of 500,000 workers.

“The average exceeds the median in this case because there is a significant possibility of large reductions in employment,” Swagel said.

“In 2024, most workers who would not have a job because of the higher minimum wage would still be looking for work and hence be categorized as unemployed,” he added. “By 2029, however, half of the 700,000 people who would be jobless because of the bill would have dropped out of the labor force. Younger, less educated people would account for a disproportionate share of those reductions in employment.”

Swagel said that higher wages would increase employers’ costs for producing goods and services, leading to increased costs to consumers in the form of higher prices, which would in turn result in less buying and a reduction in employment of workers at all wage levels.

“Some employers would therefore respond to a higher minimum wage by shifting their means of production toward using more machines and technology and reducing their employment of low-wage workers,” he said.

“A higher minimum wage does not mean much to a worker who loses their job because of it,” Cassidy said. “We need to have a responsible conversation about the minimum wage, but Democrats’ approach would hurt small businesses and take away opportunities from hardworking Americans.”

In September, Cassidy and some of his Senate Republican colleagues introduced the Higher Wages for American Workers Act, which would gradually raise the federal minimum wage to $11 by 2028.

Benefits Could Be Even Greater

An analysis by the Economic Policy Institute in Washington, D.C., found that raising the federal minimum wage to $17 by 2028 would positively impact nearly 28 million workers across the country. The average affected worker who works year-round would receive an extra $3,100 per year.

“Raising the federal minimum wage is critical to protect workers who have been left behind,” said Ben Zipperer, senior economist at the Economic Policy Institute. “A higher federal minimum wage can build on existing state-level standards and lock in the wage gains made by low-wage workers in the economic recovery from the COVID-19 pandemic.”

“No person working full-time in America should be living in poverty,” Scott said. “Raising the minimum wage is good for workers, good for business, and good for the economy.”

“The $7.25-an-hour federal minimum wage is a starvation wage,” Sanders said. “It must be raised to a living wage—at least $17 an hour.”   

President Joe Biden has also called for a gradual increase in the federal minimum wage over several years. The threshold has been stuck at $7.25 an hour since 2009, the longest period without an increase since the federal minimum wage was established in 1938.

According to the U.S. Bureau of Labor Statistics, about 1 million workers are paid wages at or below the federal minimum wage, making up 1.3 percent of all hourly paid workers. About 75 percent of them are employed in service occupations, such as food preparation and server jobs in restaurants. Tips usually supplement hourly wages for the majority of these workers.

State Disparities

Thirty states and Washington, D.C., have a minimum wage above the federal minimum, and many more localities have minimum wages above their state minimum wage.

“Workers in most of these states will still benefit from a $17 federal minimum wage, but the effect is muted because low-wage workers in those states have already seen wage increases above the federal minimum,” Zipperer said.

At the start of 2024, seven states and Washington, D.C., have minimum wages of at least $15 an hour. Twenty states continue to have a legal minimum wage of $7.25. There is no minimum wage law in Alabama, Louisiana, Mississippi, South Carolina or Tennessee, so minimum wages default to $7.25. In Georgia and Wyoming, the state minimum wage is lower than the federal minimum wage, at $5.15 an hour. But most employers are subject to the Fair Labor Standards Act and must pay the federal minimum wage.