New CBO Report On Government-Mandated $15 Minimum Wage

Published on

Senator Bernie Sanders has aggressively made the case for a $15 minimum wage. This morning’s new Congressional Budget Office report shows that, contrary to Sanders’ rhetoric, a $15 minimum wage will have a devastating impact on the country’s employers and employees.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q4 2020 hedge fund letters, conferences and more

Specifically, the higher minimum wage would eliminate 1.4 million jobs. In fact, the policy would leave 500,000 more people jobless than it would pull out of poverty.

Below are some key takeaways from the CBO's new report, which updates its 2019 analysis for new economic projections and subsequent policy changes on the state level:

Non-Partisan Congressional Budget Office - The Government-Mandated $15 Minimum Wage:

Kills 1.4 Million Jobs, Forces 700,000 Workers Out Of The Labor Force

“In 2025, when the minimum wage reached $15 per hour, employment would be reduced by 1.4 million workers (or 0.9 percent), according to CBO’s average estimate. In 2021, 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; by 2025, however, half of the 1.4 million people who would be jobless because of the bill would have dropped out of the labor force, CBO estimates.” (P.8)

Job Loss Exceeds Poverty Reduction By 500,000

“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.” (P.2)

Job Loss Could Reach 2.7 Million

“CBO estimates that there is a one-third chance of that effect’s being between about zero and 1.0 million workers and a one-third chance of its being between 1.0 million and 2.7 million workers.”

Punishes The Young And Less Educated

“Young, less educated people would account for a disproportionate share of those reductions in employment.” (p.8)

More Spending On Government Health Care, Higher Health Care Prices

“Under the bill, Medicaid spending would increase because the effects of increases in the price of health care services and increases in enrollment by people who would be jobless as a result of the minimum-wage increase would outweigh the effects of decreases in enrollment by people with higher income. Prices, such as those for long-term services and supports and medical services, would increase as a result of negotiations that accounted for higher costs of labor facing health care providers.” (P.3)

Higher Spending On Unemployment Insurance Because Bill Would Kill Jobs And Increase Unemployment

“Spending for unemployment compensation would increase under the bill because more workers would be unemployed.” (P.4)

Higher Prices For Consumers

“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.” (P.8)

Fewer Jobs, More Automation

“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. (P.8)

Less Investment

“In addition to its effect on real output through employment, the bill would cause the stock of capital goods to be smaller than it would be otherwise. Capital goods are assets that businesses use to produce goods and services; they include tools, buildings, vehicles, machinery, and equipment. Some businesses would invest in capital goods to replace workers. Other businesses, however, would be discouraged from constructing new buildings or buying new machines if they anticipated having fewer employees to use them. On average, over the 2021–2031 period, real investment would be slightly lower than it would be if current laws did not change, CBO estimates. That reduction in investment would reduce workers’ productivity and lead to further reductions in their employment.” (P.10)