The nonpartisan Congressional Budget Office (CBO) on Monday reaffirmed something we already knew but that bears repeating: Higher minimum wages costs jobs. The CBO’s number crunchers found that Democrats’ current proposal to raise the federal minimum wage to $15 an hour, up from the current rate of $7.25, would cost workers 1.4 million jobs. Workers lucky enough to keep their jobs will see their take-home pay eroded by higher prices.
The CBO’s study, titled “The Budgetary Effects of the Raise the Wage Act of 2021,” found that it would result in employers hiring less, laying off existing workers. The losses would occur at all wage levels. The overall losses were up 100,000 from the CBO’s previous estimate for a $15 federal minimum.
A higher federal minimum wage would also result in more jobs being replaced by 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,” the report found.
Workers would get $509 billion more in pay under the higher minimum wage but lose $175 million of that due to reduced employment. That’s still $333 billion more for the workers who keep their jobs, but the money will buy them less. “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,” the CBO determined.
This is all consistent with what the CBO has found previously. A recent working paper by the National Bureau of Economic Research paper found that studies that purport to see no job loss get there by fudging the numbers.