$15 Minimum Wage Could Reduce Poverty but Increase Unemployment

By Thomas Price Tuesday, February 9, 2021

With the new Congress in the United States (US) beginning to propose legislation, one of the largest and most ambitious proposals put in question already has been a federal $15 minimum wage. Especially as the COVID-19 pandemic has kept many minimum wage workers on reduced hours or in situations where they are putting themselves at risk of infection, the timing for this new legislation appears ideal. However, while increasing the minimum wage would have an incredibly positive effect on many Americans, it could also have a negative effect on others as well as on the federal government and many companies and small businesses. The Congressional Budget Office’s recently released report shares several of those details in-depth as Congress continues to debate passing this type of legislation.

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Positive Impact of Minimum Wage Bump

The $15 minimum wage has been up for discussion many times previously, with much of the support for it pointing toward the major positive effect it would have for thousands of workers throughout the nation. This has been supported by the Congressional Budgetary Office who estimated that this increase in wages would directly result in lifting 900,000 Americans out of poverty — a massive feat. This estimation goes even higher if the CBO’s employment projections are proven to be too high.

Another major positive would be that the average benefits in the federal Social Security program would rise as more workers would delay their benefits to increase the amount of money put in. Spending for nutrition programs would also decrease as more Americans would be able to either lift out of beneficiary programs or increase their overall beneficiary amount. The higher wages from the companies employing these workers would cover much more.

Negative Impact of Increased Minimum Wage

While an increase in the minimum wage would have a strong benefit for thousands if not millions of Americans, several effects could harm companies (and the business they generate), the federal government, and individuals as well.

According to the CBO report, the main impact would come in the form of a possible job loss for 1.4 million Americans as companies and businesses may not be able to maintain as large of a staff at a higher wage. At the same time, the cumulative federal budget deficit over the next ten years would also increase by $54 billion if spending cuts are not made in other areas.

Outside of laying off staff, businesses and companies of all types may also be forced to increase the cost of goods and services in order to properly pay their workers at the marked up wage. This would possibly decrease the amount of business a company does over time as well. Alongside increased prices, inflation would also rise as a result of a higher minimum wage.

Final Conclusions

While the estimates look to have a mixed effect, the CBO also acknowledges that there are several uncertainties surrounding these current estimates. If the increase in wages does not result in as large a job loss as projected, more individuals would be lifted out of poverty. This would cause a reduction in benefits spending for the government and an increase in spending on goods and services provided by businesses and companies as more people would be able to afford it. There would also be an inverse effect if the job losses are underestimated.

About the Author

Headshot for author Thomas Price

Tom Price is a writer focusing on Entertainment and Sports Features. He has a degree from NYU in English with a minor in Creative Writing. He has been previously published for Washington Square News, Dignitas, CBR, and Numbers on the Boards.

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