What Are The Economic Impacts Of A $15 Minimum Wage Hike

Update: at almost the same time this article went to digital print, the CBO released its estimates on the effect the $15 min wage would have. In a nutshell:

  • The cumulative budget deficit over the 2021–2031 period would increase by $54 billion
  • From 2021 to 2031, the cumulative pay of affected people would increase, on net, by $333 billion—an increased labor cost for firms considerably larger than the net effect on the budget deficit during that period.
  • That net increase would result from higher pay ($509 billion) for people who were employed at higher hourly wages under the bill, offset by lower pay ($175 billion) because of reduced employment under the bill.
  • Employment would be reduced by 1.4 million workers or 0.9 percent
  • The number of people in poverty would be reduced by 0.9 million

Full report here.

* * *

Following this weekend's full-on assault by Biden's SecTres Janet Yellen pitching the admin's massive $1.9 trillion stimulus package, many questions remained unanswered. As Rabobank's Michael Every wrote this morning, even a $1,400 check - assuming it passes - does not change that fact for many. Also notably, while predicting full employment in 2022 if and only if the Biden plan passes, Yellen admitted that the stimulus bill does not create any jobs directly. As she put it, “the spending it will generate will create demand for workers”. But at what wage rate- given the minimum wage does not look set to rise to $15 - and in what sectors? What if - as Every rhetorically observes - "the USD1,400 is spent on imported goods rather than something made in the US? And what if it is spent on stocks that end up dropping in price as a transfer of wealth to the deep pockets of a hedge fund owner who is shorting them? Does this get us back to “full employment”?"

No, of course, it doesn't, but sure helps create a new generation of day traders who have no other skills except for BTFD

Yet while Biden is valiantly fighting to pass a $2,000 $1,400 stimulus check - amid rising warnings from the Larry Summerses of the world that this could overheat the US economy and spark an inflationary fire - the question is what will the new minimum wage be. Will it be $15... or will it remain unchanged?

Overnight, Goldman has published a note looking at the economic effects of a $15 minimum wage hike (which may prove to be completely unnecessary since the odds of such a wage increase look virtually nil), and yet at some point in the future it is quite likely that wages will increase so it is worth going through Goldman's methodology.

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