Paul Distorts CBO’s Estimate on Impact of $15 Minimum Wage
By D'Angelo Gore
Posted on January 22, 2021
Raising the federal minimum wage to $15 an hour would cause 1.3 million workers to become jobless in an average week in 2025, according to the Congressional Budget Office’s median estimate.
Republican Sen. Rand Paul’s claim that the government estimates the pay increase would lead to unemployment for “close to” or “almost 4 million people” refers to the high end of CBO’s range of potential outcomes. The low end of the range was “about zero” jobs lost, CBO said.
Paul, who has opposed past efforts to increase the current federal minimum wage of $7.25 per hour, made the claim about job losses in at least two Jan. 20 interviews in which he talked about early actions taken in President Joe Biden’s administration.
During an appearance on “Fox News Primetime,” Paul said: “But also raising the minimum wage to $15, I think, will also — the government estimates are close to 4 million people will lose their jobs. Particularly hurt among this are minorities and black teenagers, particularly with high unemployment.”
Earlier in the day, on the Fox News Channel’s “America’s Newsroom,” Paul said: “So raising our taxes will cause corporations to flee, but if you mandate what the wages are, if you mandate a minimum wage of $15, it’s not like everybody gets $15. The people who still have a job get $15, but many people will become unemployed. In fact, government statistics say almost 4 million people will lose their jobs if you mandate a $15 an hour job minimum wage.”
To support the Kentucky senator’s claims, Paul’s office emailed us a link to a July 2019 CBO report that did not say more than doubling the federal minimum wage would definitely result in about 4 million fewer people working.
The CBO Analysis
The nonpartisan federal agency released its 52-page report around the time that the Democratic-controlled House of Representatives was considering H.R. 582, also known as the Raise the Wage Act. It would incrementally raise the federal minimum wage from $7.25 — where it has been set since 2009 — to $15 by 2025. Starting in 2026, the amount would be indexed to median hourly wage growth to protect against future erosion.
But Biden, who was inaugurated the day that Paul made his claims, supports a $15 federal minimum and has included the proposed wage increase in his $1.9 trillion coronavirus relief package. The president also has plans to sign an executive order aimed at requiring federal contractors to pay its workers at least that much per hour.
Twenty-nine states and the District of Columbia have a minimum wage higher than the federal one.
In its 2019 analysis, CBO concluded that raising minimum hourly pay for employees to $15 would have both positive and negative effects.
“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 CBO said. The budget analysts also calculated that “the number of people with annual income below the poverty threshold in 2025 would fall by 1.3 million.”
On the other hand, CBO said, “1.3 million other workers would become jobless, according to CBO’s median estimate.” In addition, it said, “there is a two-thirds chance that the change in employment would be between about zero and a decrease of 3.7 million workers.”
That means CBO anticipates that up to 3.7 million jobs could be eliminated — but that’s not the same as saying that “will” happen, as Paul stated it. CBO said there is a lot of uncertainty about how a $15 minimum wage would actually affect employment.
“First, future wage growth under current law may differ from CBO’s projections. If wages grow more slowly than CBO projects, for example, then the [$15] option would induce both larger increases in wages and larger decreases in employment than CBO estimates,” its report said. “Second, employment’s responsiveness to mandated wage increases might be stronger or weaker than CBO anticipates. If employment is less responsive than CBO expects, for example, then the option would have a smaller effect on employment than CBO has estimated.”
CBO noted that increasing the cost of employing low-wage workers generally leads employers to make staff cutbacks. But that’s not always the case, as employment can actually go up for certain workers and in certain scenarios, CBO said.
Beyond providing its own estimates, the CBO report mentioned that many other studies analyzing a federal minimum wage hike have produced a wide range of potential outcomes: from “little or no effect of minimum wages on employment” to “substantial reductions in employment.”
The Congressional Research Service, the nonpartisan research arm of Congress, made a similar observation in an August 2019 report about minimum wages and the Raise the Wage Act.
“A previous consensus that increasing the minimum wage reduces employment, at least among teenagers, has been challenged by numerous recent studies suggesting little or no dis-employment effects of minimum wage increases,” CRS stated. “Producing projected impacts adds methodological complexity and requires potentially strong assumptions about overall wage growth and how employers will respond to wage changes in an unknown economic environment.”
So there’s simply no way to know for sure if jobs would be lost or how many.
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