Yellen says raising minimum wage to $15 an hour would have ‘minimal’ impact on jobs, but Congressional Budget Office disagrees
Raising the minimum wage to $15 an hour from $7.25 would help the U.S. economy more than it would harm it, Janet Yellen, President Joe Biden’s Treasury Secretary nominee, told lawmakers this week.
“Right now we have millions of American workers who are putting their lives on the line to keep their communities functioning, and sometimes even working multiple jobs, aren’t earning enough to put food on the table and a roof over their heads,” Yellen, a former Federal Reserve chair, told the Senate Finance Committee at her confirmation hearing.
Raising the minimum wage, she said, would “really help many of those workers” and job losses as a result of it would be “very minimal, if anything.”
Biden, in his recently unveiled stimulus proposal, is pushing for a $15 minimum wage and end tip credits — a way to pay tipped workers less than minimum wage. The federal minimum wage has been $7.25 an hour since 2009. Workers at this level earn roughly $15,000 a year if they work 40 hours a week.
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Yellen’s testimony differs from research the Congressional Budget Office, a nonpartisan federal agency, published in 2019 on the effects of raising the minimum wage to $15 an hour.
The agency estimated that such an increase would boost the wages of 17 million workers, but also said that a median of 1.3 million workers could become unemployed by 2025 if a $15 minimum were enacted. Though the same number of people would no longer be living below poverty levels, the CBO found.
The report also found that there’s a two-thirds chance there are zero to a maximum of 3.7 million job losses as a result of a $15 minimum wage.
“The last thing this economy needs as we attempt to recover is the loss of 1.3 to 3.7 million jobs,” Sen. Tim Scott, a Republican from South Carolina, said Tuesday.
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In Yellen’s prior testimony as Federal Reserve Chair in 2014, she acknowledged that raising the minimum wage to $10.10 an hour, which former President Barack Obama proposed, would result in “some amount of negative impact on employment as a consequence.”
The CBO reported in 2014 that 500,000 job losses would have resulted from raising the minimum wage to $10.10 from $7.25 by mid-2016. But the tradeoff she said is “that a large number of individuals would see their incomes raised as a consequence.”
Like Scott, some economists and Republican lawmakers are concerned that raising the minimum wage would result in more job losses in industries that have taken the biggest hits during the pandemic.
Like Florida, California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey and New York all pledged to pay workers a minimum wage of $15 in the coming years. Other states have opposed efforts to raise their states’ minimum wage, fearing that implementing it could result in widespread job losses.
Currently, no state has an effective $15 minimum wage, but Washington D.C. does. Washington (state) and Massachusetts have the highest state minimum wages as of July 2020 at $13.50 an hour and $12.75 an hour, respectively, according to the Department of Labor.
Last July, House Democrats passed the Raise the Wage Act, a bill that would increase the federal minimum wage to $15 an hour. Former Senate Majority Leader Mitch McConnell refused to take up the matter in the Senate citing the research from the Congressional Budget Office.
“We don’t need to lose jobs. We don’t have enough jobs now,” McConnell said in a July interview last year.
Designing and implementing a minimum-wage hike needs “more thought,” according to Yuci Chen, a labor economist at the W.E. UpJohn Institute, an independent research organization based in Kalamazoo, Mich.
Chen’s prior research found that increasing manufacturing employees’ wages by 1% caused employers to cut their working hours by 0.7%. It also caused employers to increase investments in machinery by 2.7%, according to her research that was published by the Center for Economic Studies, a branch of the U.S. Census Bureau.
Heidi Shierholz, an economist at the Economic Policy Institute, a progressive think-tank, argued that the CBO’s estimated job losses from enacting a $15 minimum wage are “overstated.”
“The crucial fact is that an employment decline as a result of a minimum wage increase doesn’t necessarily mean any worker is actually worse off,” she wrote in a July 2019 report. “For a wide variety of reasons, a sizable share of low-wage workers routinely cycle in and out of employment; each quarter, more than 20% of the lowest-wage workers leave or start a job.”
“This means that even if employment does decline as CBO predicts, workers who work less can still come out ahead because they earn much more when they are working.”