$15 Option

$12 Option

$10 Option

Current Law Federal Minimum Wage

25th Percentile of 

Workers’ Wages

10th Percentile of 

Workers’ Wages

Actual Projected

0

4

8

12

16

1973 1981 1989 1997 2005 2013 2021 2029

2018 Dollars

The Effects on 

Employment and Family 

Income of Increasing the 

Federal Minimum Wage

JULY 2019

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE
At a Glance

The federal minimum wage is $7.25 per hour for most workers. The 

Congressional Budget Office examined how increasing the federal minimum 

wage to $10, $12, or $15 per hour by 2025 would affect employment and 

family income. 

• 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. But 1.3 million other workers 

would become jobless, according to CBO’s median estimate. There is a twothirds chance that the change in employment would be between about zero 

and a decrease of 3.7 million workers. The number of people with annual 

income below the poverty threshold in 2025 would fall by 1.3 million.

• The $12 option would have smaller effects. In an average week in 2025, it 

would increase wages for 5 million workers who would otherwise earn less 

than $12 per hour. Another 6 million workers otherwise earning slightly 

more than $12 per hour might see their wages rise as well. But the option 

would cause 0.3 million other workers to be jobless. There is a two-thirds 

chance that the change in employment would be between about zero and a 

decrease of 0.8 million workers. The number of people with annual income 

below the poverty threshold in 2025 would fall by 0.4 million.

• The $10 option would have still smaller effects. It would raise wages for 

1.5 million workers who would otherwise earn less than $10 per hour. 

Another 2 million workers who would otherwise earn slightly more than 

$10 per hour might see their wages rise as well. The option would have 

little effect on employment in an average week in 2025. There is a twothirds chance that the change in employment would be between about zero 

and a decrease of 0.1 million workers. This option would have negligible 

effects on the number of people in poverty.

The two main sources of uncertainty about the changes in employment are 

uncertainty about wage growth under current law and uncertainty about the 

responsiveness of employment to a wage increase.

www.cbo.gov/publication/55410
Contents

Summary 1

What Options for Increasing the Federal Minimum Wage Did CBO Examine? 1

What Effects Would the Options Have? 1

Why Are the Outcomes Uncertain? 5

The Current Federal Minimum Wage 5

Three Options for Increasing the Federal Minimum Wage 5

The $15 Option 6

The $12 Option 7

The $10 Option 8

How Increases in the Minimum Wage Affect Employment and Family Income 8

Employment 9

Family Income 11

Effects of the Three Options on Employment and Family Income 12

Effects of the Options on Employment 12

BOX 1. HOW AN INCREASE IN THE MINIMUM WAGE WOULD AFFECT THE FEDERAL BUDGET 13

Effects of the Options on Family Income 14

BOX 2. THE MINIMUM WAGE AND THE EARNED INCOME TAX CREDIT 18

Uncertainty About the Estimates 19

Appendix A: The Basis for CBO’s Findings 21

Appendix B: Research About the Effects of Minimum-Wage Increases 39

List of Tables and Figures 47

About This Document 48
Notes

Numbers in the text, tables, and figures may not add up to totals because of rounding.

Federal minimum wages are expressed in nominal (current-year) dollars. Unless otherwise 

indicated, other dollar values are expressed in 2018 dollars, adjusted to remove the effects 

of inflation using the price index for personal consumption expenditures published by the 

Bureau of Economic Analysis. 

The data underlying the figures in this report are posted along with the report on CBO’s 

website (www.cbo.gov/publication/55410). 
The Effects on Employment and Family Income 

of Increasing the Federal Minimum Wage

Summary

The federal minimum wage of $7.25 per hour has not 

changed since 2009, though many states and localities 

have set their minimum wage above that level. Increasing 

the federal minimum wage would have two principal 

effects on low-wage workers. For most low-wage workers, 

earnings and family income would increase, which would 

lift some families out of poverty. But other low-wage 

workers would become jobless, and their family income 

would fall—in some cases, below the poverty threshold. 

What Options for Increasing the Federal Minimum 

Wage Did CBO Examine?

The Congressional Budget Office examined three options 

for increasing the federal minimum wage. 

The first option would raise the federal minimum wage 

to $15 per hour as of January 1, 2025. That increase 

would be implemented in six annual increments starting 

on January 1, 2020. After reaching $15 in 2025, the 

minimum wage would be indexed, or tied, to median 

hourly wages. The $15 option would also gradually 

eliminate exceptions to the minimum wage for tipped 

workers, teenage workers, and disabled workers.

The second option would raise the federal minimum 

wage to $12 per hour as of January 1, 2025. The $12 

option would be implemented on the same timeline 

as the $15 option but would not index the minimum 

wage to wage growth after 2025. It would leave in place 

current exceptions.

The third option would raise the federal minimum wage 

to $10 per hour as of January 1, 2025. The $10 option 

would be implemented on the same timeline as the $15 

and $12 options. Like the $12 option, it would not 

index the minimum wage to wage growth and would 

leave in place current exceptions.

What Effects Would the Options Have?

Of the three options, the $15 option would have the 

largest effects on employment and family income (see 

Figure 1). That is because it would increase wages for 

the most workers, because it would impose the largest 

increases in wages, and because, in CBO’s estimation, 

employment is more responsive to relatively large wage 

increases and increases that will be adjusted for future 

wage growth. The $12 option would have smaller effects, 

and the effects of the $10 option would be smaller still. 

There is considerable uncertainty about the size of any 

option’s effect on employment. CBO’s estimates are 

based on the median values of likely ranges for wage 

growth and the responsiveness of employment to changes 

in wages. In particular, the likely ranges for the responsiveness parameter are not symmetric: That value has an 

equal chance of being smaller or larger than the median, 

but if it is larger, it could be substantially larger.

Effects of the $15 Option on Employment and Income.

According to CBO’s median estimate, under the $15 

option, 1.3 million workers who would otherwise be 

employed would be jobless in an average week in 2025. 

(That would equal a 0.8 percent reduction in the number 

of employed workers.) CBO estimates that there is about 

a two-thirds chance that the change in employment 

would lie between about zero and a reduction of 3.7 million workers (see Table 1).

In addition, in an average week in 2025, the $15 option 

would increase the wages of 17 million workers whose 

wages would otherwise be below $15 per hour, CBO 

estimates. The wages of many of the 10 million workers 

whose wages would be slightly above the new federal 

minimum would also increase.
2 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

The $15 option would affect family income in a variety 

of ways. In CBO’s estimation, it would:

• Boost workers’ earnings through higher wages, 

though some of those higher earnings would be offset 

by higher rates of joblessness;

• Reduce business income and raise prices as higher 

labor costs were absorbed by business owners and 

then passed on to consumers; and

• Reduce the nation’s output slightly through the 

reduction in employment and a corresponding 

decline in the nation’s stock of capital (such as 

buildings, machines, and technologies).

On the basis of those effects and CBO’s estimate of the 

median effect on employment, the $15 option would 

reduce total real (inflation-adjusted) family income in 

2025 by $9 billion, or 0.1 percent.1

1. That dollar amount and others in this report are expressed in 

2018 dollars, unless otherwise indicated.

Figure 1.

Effects of Increases in the Federal Minimum Wage on Employment and Family Income, 2025

$10 Option

$12 Option

$15 Option

−2

0

2

4

6

−2

0

2

4

6

−2

0

2

4

6

−4 −3 −2 −1 0 1

Millions of Workers

Less Than

 1.0

1.0

 to 1.49

1.5

 to 1.99

2.0

 to 2.99

3.0

 to 5.99

6.0

 or More

Ratio of Family Income to the Poverty Threshold

Change in Employment in an Average Week Percentage Change in Average Annual Real Family Income

Median Estimate a

Likely Range b

Millions of Workers

Source: Congressional Budget Office, using monthly and annual data from the Census Bureau’s Current Population Survey.

The options would raise the minimum wage to $15, $12, and $10, respectively, in six steps between January 1, 2020, and January 1, 2025. Under the 

$15 option, the minimum wage would then be indexed to median hourly wages; under the $12 and $10 options, it would not.

Changes in real (inflation-adjusted) income reflect changes in before-tax family cash income. Those changes include increases in earnings for workers 

who would receive a higher wage, decreases in earnings for workers who would become jobless, losses in income for business owners, and decreases 

in income because of increases in prices.

The definitions of income and of poverty thresholds are those used by the Census Bureau to determine the official poverty rate. CBO projects that in 

2025, the poverty threshold (in 2018 dollars) will be $20,480 for a family of three and $26,330 for a family of four.

a. Median estimates are calculated using median values of likely ranges for wage growth and the responsiveness of employment to changes in wages.

b. In CBO’s assessment, there is a two-thirds chance that the effect would be within this range.
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 3

Table 1.

Effects of Increases in the Federal Minimum Wage on Employment, Income, and Poverty, 2025

Option

$15 $12 $10 

Change in Employment in an Average Week (Millions of workers)

Median estimatea -1.3 -0.3 *

Likely rangeb

Low end * * *

High end -3.7 -0.8 -0.1

Number of Workers Who Could See Increases in Their Earnings in an Average Week (Millions)

Directly affected workersc 17.0 5.0 1.5

Potentially affected workersd 10.3 6.4 1.9

Change in Real Annual Income

Families with income below the poverty threshold

Billions of 2018 dollars 7.7 2.3 0.4

Percentage 5.3 1.6 0.3

Families with income between one and three times the poverty threshold

Billions of 2018 dollars 14.2 2.3 0.3

Percentage 3.5 0.6 **

Families with income between three and six times the poverty threshold

Billions of 2018 dollars -2.1 -0.3 ***

Percentage -0.1  

Families with income more than six times the poverty threshold

Billions of 2018 dollars -28.4 -5.1 -0.6

Percentage -0.3 -0.1 ** 

All families

Billions of 2018 dollars -8.7 -0.8 -0.1

Percentage -0.1 ** **

Change in the Number of People in Poverty (Millions)e -1.3 -0.4 *

Source: Congressional Budget Office, using monthly and annual data from the Census Bureau’s Current Population Survey.

The options would raise the minimum wage to $15, $12, and $10, respectively, in six steps between January 1, 2020, and January 1, 2025. Under the 

$15 option, the minimum wage would then be indexed to median hourly wages; under the $12 and $10 options, it would not.

Changes in real (inflation-adjusted) income reflect changes in before-tax family cash income. Those changes include increases in earnings for workers 

who would receive a higher wage, decreases in earnings for workers who would become jobless, losses in income for business owners, and decreases 

in income because of increases in prices.

The percentage change in total real annual income shown here is consistent with but not necessarily equal to the percentage change in average 

annual real family income shown elsewhere in this report.

The definitions of income and of poverty thresholds are those used by the Census Bureau to determine the official poverty rate. CBO projects that in 

2025, the poverty threshold (in 2018 dollars) will be $20,480 for a family of three and $26,330 for a family of four.

* = between −0.05 million and 0.05 million; ** = between −0.05 percent and 0.05 percent; *** = between −0.05 billion and 0.05 billion.

a. Median estimates are calculated using median values of likely ranges for wage growth and the responsiveness of employment to changes in wages.

b. In CBO’s assessment, there is a two-thirds chance that the effect would be within this range.

c. Directly affected workers are those whose hourly wage, in the absence of the change in the minimum wage, would range from just below the old 

minimum to the new, higher minimum. All of those workers would either be jobless or see increases in their earnings in an average week.

d. Potentially affected workers are those whose hourly wages are above the proposed minimum wage—specifically, between the proposed minimum 

and that amount plus 50 percent of the increase in their applicable minimum wage. Only some of those workers would have increased earnings 

under the options.

e. Calculated using before-tax family cash income.
4 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

The effects of those income changes would vary across 

families. Changes in earnings would mainly affect 

low-income families, but many higher-income families 

would be affected, too. The loss in business income 

would be mostly borne by families well above the poverty line. All consumers would pay higher prices, but 

higher-income families, who spend more, would pay 

more of those costs. And the cost of effects on the overall 

economy would generally accrue to families in proportion to their income, which means they would largely be 

absorbed by families with income well above the poverty 

threshold. 

Taking those effects into account, CBO estimates that 

families whose income would be below the poverty 

threshold under current law would receive an additional 

$8 billion in real family income in 2025 under this 

option. That would amount to a 5.3 percent increase in 

income, on average, for such families. That extra income 

would move, on net, roughly 1.3 million people out of 

poverty. Real income would fall by about $16 billion for 

families above the poverty line; that would reduce their 

total income by about 0.1 percent.

Effects of the $12 Option on Employment and Income.

Under the $12 option, according to CBO’s median 

estimate, about 0.3 million workers who would otherwise be employed would be jobless in an average week 

in 2025. (In percentage terms, the number of employed 

workers would fall by about 0.2 percent.) There is a 

two-thirds chance that the change in employment would 

lie between about zero and a reduction of 0.8 million 

workers, in CBO’s assessment. However, in an average 

week in 2025, the increase in the federal minimum wage 

would boost the wages of 5 million workers who would 

otherwise earn less than $12 per hour, CBO estimates. 

Wages would also increase for many of the 6 million 

workers who would otherwise earn just above $12 per 

hour.

Like the $15 option, this option would boost wages, 

but it would also increase joblessness, reduce business 

income, raise prices, and lower total output in the 

economy. On balance, real family income in 2025 would 

fall by $1 billion, or less than 0.05 percent. The effects 

of those changes would again vary across families. CBO 

estimated that families with income below the poverty 

threshold under current law would receive $2.3 billion 

in additional real income under the option. The option 

would move, on net, about 0.4 million people out of 

poverty. Families above the poverty line would receive 

about $3 billion less in real income, a very small share of 

their total income.

Effects of the $10 Option on Employment and Income.

According to CBO’s median estimate, the $10 option 

would have virtually no effect on employment in an 

average week in 2025. There is a two-thirds chance that 

the effect on employment would lie between about zero 

and a decrease of 0.1 million workers. In an average 

week in 2025, wages for 1.5 million workers who would 

otherwise be paid less than $10 per hour would increase, 

CBO estimates. Wages would also increase for many of 

the 2 million additional workers who would otherwise 

earn slightly more than $10 per hour in 2025.

Real annual family income would again be affected by 

changes in earnings, business income, and prices. On 

balance, the $10 option would reduce real family income 

in 2025 by $0.1 billion, a very small percentage. CBO 

estimates that real income would increase, on net, by 

$0.4 billion for families whose income would otherwise 

be below the poverty threshold. Families with higher 

incomes would see very small changes to their real 

income. The option would also have a small effect on the 

number of people in poverty. 

Other Effects. Numerous studies have examined the link 

between minimum wages and a range of outcomes other 

than employment and family income. Those include 

labor force outcomes such as labor force participation 

(whether a person is working or actively seeking a job); 

health outcomes such as depression, suicide, and obesity; 

education outcomes such as school completion and job 

training; and social outcomes such as crime. CBO did not 

examine those other possible outcomes in this analysis.

CBO also did not estimate how any of the three options 

would affect the federal budget. However, the agency 

previously estimated how proposed changes to the minimum wage under the Raise the Wage Act (H.R. 582) 

would affect the federal budget by boosting the pay of 

certain federal employees.2 The policy analyzed in that 

estimate is very similar to the $15 option in this report.

2. Congressional Budget Office, cost estimate for H.R. 582, Raise 

the Wage Act (April 22, 2019), www.cbo.gov/publication/55152. 
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 5

Why Are the Outcomes Uncertain?

There are two main reasons why CBO’s median estimates of the effects of increases in the minimum wage 

on employment are uncertain. First, future wage growth 

under current law is uncertain. If wages grow faster than 

CBO projects, then wages in 2025 will be higher under 

current law than CBO anticipates. In that case, increases 

in the federal minimum wage would have smaller effects 

on employment than CBO expects. If wages grow more 

slowly than CBO projects, the options would have larger 

effects on employment than CBO expects. 

Second, there is considerable uncertainty about the 

responsiveness of employment to an increase in the minimum wage. If employment is more responsive than CBO 

expects, then increases in the minimum wage would lead 

to larger declines in employment. By contrast, if employment is less responsive than CBO expects, then such 

increases would lead to smaller declines in employment. 

Findings in the research literature about how changes 

in the federal minimum wage affect employment vary 

widely. Many studies have found little or no effect of 

minimum wages on employment, but many others have 

found substantial reductions in employment.

The Current Federal Minimum Wage

The Fair Labor Standards Act of 1938 (FLSA) established the federal minimum wage. Under current law, 

the FLSA covers most low-wage workers, but it does not 

cover workers who are self-employed, work for certain 

small employers, or are paid by the number of projects 

they complete rather than the amount of time they 

work.3 For other categories of workers, the FLSA makes 

some exceptions to the federal minimum wage. Tipped 

workers, such as waiters and bartenders, are subject to 

two separate minimum wages. Their total hourly earnings (including tips) must equal or exceed $7.25—the 

regular minimum wage—and, separately, their “cash” 

earnings (excluding tips) must exceed $2.13 per hour. 

CBO estimates that 3 million workers are subject to 

those provisions. The FLSA also allows employers to pay 

teenage workers $4.25 per hour during their first 90 days 

of employment.4 Employers certified by the Department 

3. For details about who is covered by the FLSA, see Department of 

Labor, “Fact Sheet #14: Coverage Under the Fair Labor Standards 

Act (FLSA)” (July 2009), www.dol.gov/whd/regs/compliance/

whdfs14.htm. 

4. For details about the FLSA’s minimum-wage requirements, see 

Fair Labor Standards Act of 1938, 29 U.S.C. §201 et seq. (2012). 

of Labor are allowed to pay disabled workers wages 

below $7.25 per hour—though those lower wages must 

be justified by analyses of prevailing wages and worker 

productivity. There are about 125,000 such workers.

Over the years, the federal minimum wage has risen in 

nominal terms (that is, not adjusted for inflation). The 

most recent changes raised the minimum wage in three 

steps, from $5.15 per hour in July 2007 to $7.25 in 

July 2009, where it stands today.5 The real value of the 

minimum wage has both risen and fallen over the years, 

however, as the nominal increases have been eroded by 

inflation (see Figure 2).6 That erosion was pronounced 

between 1981 and 1989, between 1998 and 2006, and 

between 2010 and 2019—periods during which the 

nominal minimum wage was unchanged. 

As of 2019, 29 states and the District of Columbia have a 

minimum wage higher than the federal minimum. (Many 

of those states have boosted their minimum wage in recent 

years.) The minimum wage is indexed to inflation in 17 of 

those states, and future increases have been mandated in 

6 more. Some localities also have minimum wages higher 

than the applicable state or federal minimum wage; in 

San Francisco, for instance, the minimum wage increased 

to $15.59 per hour as of July 1, 2019, and is adjusted for 

inflation annually. About 60 percent of all workers currently live in states where the applicable minimum wage is 

more than $7.25 per hour. And in 2025, about 30 percent 

of workers will live in states with a minimum wage of $15 

or higher, CBO estimates (see Figure 3).

Three Options for Increasing the 

Federal Minimum Wage

Lawmakers have proposed various options for increasing 

the federal minimum wage, including the Raise the Wage 

Act (H.R. 582), which would increase it to $15 per hour 

See also Department of Labor, “Wages and Hours Worked: 

Minimum Wage and Overtime Pay (accessed May 22, 2019), 

https://webapps.dol.gov/elaws/elg/minwage.htm.

5. There is a separate minimum wage of $10.60 per hour that 

applies to federal contractors as of January 1, 2019. See 

Department of Labor, “Executive Order 13658, Establishing 

a Minimum Wage for Contractors: Annual Update” (accessed 

June 28, 2019), www.dol.gov/whd/flsa/eo13658/.

6. Adjusted for inflation, the federal minimum wage reached its 

historical peak in 1968. In that year, its value was $1.60 in 1968 

dollars, which is equal to $9.42 in 2018 dollars if the conversion 

is done using the price index for personal consumption 

expenditures published by the Bureau of Economic Analysis. 
6 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

and subsequently index it to growth in median wages.7

CBO assessed the impact of a similar option and of other 

options that would boost the minimum wage to $12 and 

$10 per hour, respectively. (See Appendix A for more 

information.) The $15 option would gradually eliminate 

the lower minimum wages for workers whose earnings 

depend heavily on tips, for teenage workers, and for disabled workers. The other options would not.

The $15 Option

The first option would increase the federal minimum 

wage from $7.25 per hour to $15 per hour by 2025. The 

change would be in six steps: five annual increases of 

$1.30 beginning on January 1, 2020, and a final increase 

of $1.25 on January 1, 2025. The minimum wage would 

rise with the median hourly wage in each ensuing year. 

The increase in the federal minimum wage between 2020 

7. H.R. 582, the Raise the Wage Act, was ordered reported by the 

House Committee on Education and Labor on March 6, 2019.

and 2025 under this option would be about 105 percent, a percentage increase considerably higher than any 

increase mandated by prior legislation.8

Under this option, the minimum cash wage for tipped 

workers would immediately increase from $2.13 per 

hour to $3.60 per hour and would then increase by 

$1.50 each year until it reached the regular minimum 

wage. That would happen in 2029, CBO projects.

The Raise the Wage Act would phase out the lower 

minimum wage that applies to teenagers during the first 

90 days they work for an employer. In particular, that 

lower minimum would increase from $4.25 to $5.50 in 

2020 and would continue to increase by $1.25 in each 

8. The FLSA applies to Puerto Rico and certain other U.S. territories, 

but because of limitations in available data, CBO’s analysis is 

restricted to the effects of minimum-wage increases on employment 

and family income in the 50 states and the District of Columbia.

Figure 2.

Workers’ Hourly Wages and the Federal Minimum Wage, 1973 to 2029

2018 Dollars

$15 Option

$12 Option

$10 Option

Current Law Federal Minimum Wage

Actual Projected

0

4

8

12

16

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 2025 2029

25th Percentile of Workers’ Wages a

10th Percentile of Workers’ Wages a

Source: Congressional Budget Office, using monthly data from the Census Bureau’s Current Population Survey and data from the Department of Labor.

The options would raise the minimum wage to $15, $12, and $10, respectively, in six steps between January 1, 2020, and January 1, 2025. Under the 

$15 option, the minimum wage would then be indexed to median hourly wages; under the $12 and $10 options, it would not.

CBO converted wages to 2018 dollars using the price index for personal consumption expenditures published by the Bureau of Economic Analysis. 

For example, nominal values in 2025 of $15, $12, and $10 were adjusted downward to account for projected inflation between 2018 and 2025. After 

2025, the minimum wage under the $15 option would increase slightly because it would be indexed to median hourly earnings, which would grow 

faster than the price index for personal consumption expenditures, CBO projects. Actual and projected values are as of January 1 of each year.

a. The hourly wage of workers who did not report an hourly wage was estimated as their weekly earnings divided by their usual hours worked per 

week. Values beyond 2018 are projected under current law.
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 7

subsequent year until 2028, when the lower minimum 

for teenagers would be eliminated. Teenagers may be 

paid less than the regular minimum wage for a number of other reasons, including working for an exempt 

employer or in an exempt occupation. In CBO’s assessment, relatively few teenagers are paid less than the 

regular minimum wage during their first 90 days with an 

employer.

The Raise the Wage Act would also phase out the lower 

minimum wages that apply to people with disabilities. 

The lower minimum for disabled workers would rise to 

$4.25 in 2021, to $6.40 in 2022, to $8.55 in 2023, to 

$10.70 in 2024, to $12.85 in 2025, and to the regular minimum wage in 2026. In its analysis of the $15 

option’s effects, CBO applied the regular minimum wage 

to disabled workers in 2025.

The $15 option’s effect on wages would be unprecedented in recent history, CBO estimates. The option 

would place the federal minimum wage at the 20th 

percentile of projected hourly wages in 2025, higher in 

the wage distribution than it has been at any time since 

1973.9 And mandated increases in wages under the 

option—amounting to 21 percent, on average—would 

be greater than those under any recent change to the federal minimum wage (see Figure 4).10 Furthermore, past 

increases have been eroded by inflation in subsequent 

years. Under the $15 option, by contrast, the minimum 

wage would increase in real terms after 2025 because 

CBO expects median wages to grow faster than prices. 

The $12 Option

The second option CBO examined would effect a smaller 

change, increasing the federal minimum wage to $12 per 

hour in six annual increments from January 1, 2020, to 

January 1, 2025. The lower minimum wages for tipped, 

teenage, and disabled workers would remain unchanged 

under this option. Like previous increases in the federal 

minimum wage, this option would not be indexed to 

9. The federal minimum wage increased on May 1, 1974, and on 

January 1 of each of the subsequent seven years before remaining 

unchanged (in nominal terms) between January 1, 1981, and 

April 1, 1990.

10. The wage increases mandated by the $15 option would also be 

larger than those mandated by the state and local laws that have 

been studied to date.

Figure 3.

Shares of Workers, by States’ Applicable Minimum Wage

Percent

0

10

20

30

40

50

$7.25 $7.26 to $9.99 $10.00 to $11.99 $12.00 to $14.99 $15.00 or Higher

2019 2025

Source: Congressional Budget Office, using monthly data from the Census Bureau’s Current Population Survey and data from the websites of states’ 

departments of labor.

For 2019, the share of workers in each category is estimated on the basis of current state law. For 2025, those are also based on scheduled changes in 

state minimums and how states have changed their minimum wages in the past.
8 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

subsequent wage growth. The $12 option is more similar 

than the $15 option to past minimum-wage increases 

in terms of the fraction of the employed workers it 

would affect and the size of the wage increases it would 

mandate. The option would affect 4 percent of workers 

in 2025, and mandated increases in wages under this 

option would amount to 14 percent, on average.

The $10 Option

The last option CBO examined would make an even 

smaller change to the federal minimum wage, increasing 

it to $10 per hour in six annual increments from January 

1, 2020, to January 1, 2025. Like the $12 option, this 

option would not change the lower minimum wages 

for tipped, teenage, and disabled workers or index the 

minimum wage to subsequent increases in wages. The 

option would affect 1 percent of workers in 2025, and 

the average mandated increase in wages for those workers would be 7 percent. Together, those effects would be 

smaller than the effects of the three most recent increases 

in the federal minimum wage. 

How Increases in the Minimum Wage Affect 

Employment and Family Income

Raising the minimum wage has a variety of effects on 

both employment and family income. By increasing the 

cost of employing low-wage workers, a higher minimum 

wage generally leads employers to reduce the size of their 

workforce. However, for certain workers or in certain circumstances, employment can increase. The effects would 

differ across workers, employers, and states. The effects 

on employment would also cause changes in prices and 

in the use of different types of labor and capital.

By boosting the income of low-wage workers who keep 

their jobs, a higher minimum wage raises their families’ real income, lifting some of those families out of 

poverty. However, real income falls for some families 

because other workers lose their jobs, business owners 

lose income, and prices increase for consumers. For those 

reasons, the net effect of a minimum-wage increase is to 

reduce average real family income.

Figure 4.

Magnitude of Historical and Proposed Increases in the Federal Minimum Wage

Average Mandated Percentage Increase in Wages for Directly Affected Workers

$15 in 2025

$12 in 2025

$10.10 in 2016

$4.25 in 1991

$9 in 2016

$5.15 in 1997

$7.25 in 2009

$10 in 2025

0

5

10

15

20

25

0 2 4 6 8 10 12 14

Percentage of Workers Who Are Directly Affected

Source: Congressional Budget Office, using monthly data from the Census Bureau’s Current Population Survey.

Directly affected workers are those whose hourly wage, in the absence of the change in the minimum wage, would range from just below the old 

minimum to the new, higher minimum.

The two points labeled 2016 are options CBO analyzed in The Effects of a Minimum-Wage Increase on Employment and Family Income

(February 2014), www.cbo.gov/publication/44995. Those options were not enacted.
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 9

Employment

In general, increasing the minimum wage tends to reduce 

employment in two ways.11 First, higher wages increase 

the cost to employers of producing goods and services. 

The employers pass some of those increased costs on to 

consumers in the form of higher prices, and those higher 

prices, in turn, lead consumers to purchase fewer goods 

and services. The employers consequently produce fewer 

goods and services, so they reduce their employment of 

both low-wage workers and higher-wage workers.

Second, 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. Some employers therefore respond to a higher 

minimum wage by reducing their low-wage staff and 

shifting toward those substitutes. That reduces employment among low-wage workers but might increase it 

among higher-wage workers.

In some limited circumstances, increasing the minimum 

wage can boost employment. Those circumstances arise 

when employers have what is known as monopsony 

power—that is, bargaining power that allows them to 

set wages below the rates that would prevail in a more 

competitive market. (For example, employers have monopsony power when workers require substantial time and 

resources to search for and switch to a new job.) Firms 

that have monopsony power can thus pay their current 

workers less than the wage needed to attract new hires. 

All employers—including those without monopsony 

power—have incentives to hire until an additional 

worker would generate less in revenue than he or she 

would cost to employ. That extra cost of a new worker’s 

employment is called the marginal cost. For a firm without monopsony power, the marginal cost is the new hire’s 

wage, so increasing the minimum wage can only raise 

the firm’s marginal cost and thereby reduce hiring. For a 

11. The reduction in employment could come from a reduction in 

the number of people employed or a reduction in the number of 

hours worked by people who remained employed. The research 

literature that CBO reviewed focused on changes in the number 

of people employed. Relatively few studies have addressed how 

minimum-wage increases affect the number of hours worked, 

conditional on being employed, and among those that have, 

there is no consensus as to the size or sign of such effects. On the 

one hand, employers might reduce the hours of workers. On the 

other hand, part-time workers might be most likely to become 

jobless. On net, CBO projects, there would be no change in the 

average hours worked among workers who retained their jobs. 

firm with monopsony power, however, the marginal cost 

can be greater if current workers must be paid at least as 

much as new hires to make the pay of current workers 

and new hires equitable. In that case, the marginal cost 

would be the new hire’s wage plus the cost of raises the 

firm gave to current employees doing similar work. 

An increase in the minimum wage affects those two 

components in offsetting ways. It increases the cost of 

employing new hires for firms with monopsony power, 

just as it does for other firms. But it also makes firms 

with monopsony power raise wages for all current 

employees whose wages are below the new minimum, 

regardless of whether new workers are hired. If the 

employer then seeks to hire new staff, it will have already 

incurred the cost of increasing the wages of current 

employees, so the marginal cost of hiring new workers 

will be lower. Thus, a higher minimum wage can lead 

firms with monopsony power to hire new workers. 

However, if the minimum wage is high enough to diminish monopsony power, further increases in the minimum 

would tend to reduce employment. 

Effects Across Workers. Workers who would be affected 

by an increase in the minimum wage—through either 

lost employment or higher earnings—tend to come from 

groups in which low wages (defined here as less than $19 

per hour) are common. Teenagers and adults without 

a high school diploma are relatively likely to earn low 

wages, but because they make up small shares of the 

working population, those groups together account for 

only about 20 percent of low-wage workers. Women 

are more likely to have low-wage jobs than men. Parttime workers are also disproportionately represented in 

low-wage jobs, but most low-wage workers are employed 

full-time (see Table 2). 

In some cases, a higher minimum wage can increase 

wages for workers who would otherwise earn slightly 

more than the new minimum. That can occur if employers wish to maintain differentials in pay or if collective 

bargaining agreements tie wages to the federal minimum 

wage. That increase in wages can affect the employment 

of such workers, some of whom may become jobless. 

That effect typically becomes stronger over time.

However, the increase in the wages of workers paid 

less than the minimum can cause the employment of 

those who earn slightly more than the new minimum 

to increase. The wages of workers earning slightly more 
10 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

than the new minimum will increase by a smaller 

amount, so the relative cost of hiring those workers will 

be lower. As a result, they may be hired in place of those 

who would have otherwise been paid less than the minimum. That effect also typically becomes stronger over 

time. 

Effects Across Employers. Employers vary in how they 

respond to a minimum-wage increase. Employment 

tends to fall more, for example, at firms whose sales 

decline when they raise prices and at firms that can 

readily substitute machines or technology for low-wage 

workers. Employment tends to fall less, by contrast, at 

firms where higher wages reduce employee turnover (and 

therefore the cost of training new employees) and where 

employees work harder to keep their newly better-paying 

jobs. At other firms, employment can rise. For instance, 

firms with few low-wage workers might see demand rise 

for their goods and services as their competitors’ costs 

rise, and such firms might hire more workers—including 

low-wage workers—as a result.

Employers might also respond in other ways to an 

increase in the minimum wage. They might reduce 

workers’ fringe benefits (such as health insurance or pensions) and job perks (such as employee discounts), which 

would lessen the effect of the higher minimum wage 

on total compensation. That, in turn, would weaken 

employers’ incentives to reduce their employment 

of low-wage workers. Such benefit reductions would 

probably be modest, however, in part because low-wage 

workers receive few noncash benefits and because some 

employers face tax penalties if they offer noncash benefits 

only to higher-wage workers. Employers could also partly 

offset their higher costs by cutting back on training or 

by assigning work to independent contractors who are 

not covered by the FLSA. The evidence is mixed on the 

extent to which employers respond to minimum-wage 

increases in such ways. (For examples of such evidence, 

see Appendix B.)

Effects Across States. The effects of a higher minimum 

wage would vary across states. States that have, or will 

have, a minimum wage of $15 or more per hour would 

see little effect from a $15 federal minimum wage in 

2025, for example, because workers’ wages in those states 

would be unaffected by the new federal minimum. States 

that have minimum wages higher than $7.25 (but less 

than $15) in 2025 would generally see some effect if the 

federal minimum wage became higher in that year, as 

Table 2.

Projected Shares of Low-Wage Workers, by Group, 

2025

Group

Percentage 

Who Are 

Low-Wage 

Workers

Percentage 

of All 

Low-Wage 

Workers

Age

16 to 19 94 10

20 or older 30 90

All 32 100

Sex

Female 37 56

Male 27 44

All 32 100

Educational Attainment

Less than high school 69 16

High school diploma or some college 44 71

Bachelor’s degree or more 11 13

All 32 100

Hours Worked per Week

Fewer than 35 62 44

35 or more 23 56

All 32 100

Family Income

Below the poverty threshold 90 12

Between one and three times the poverty 

threshold 59 46

Three or more times the poverty threshold 19 42

All 31 100

Source: Congressional Budget Office, using monthly and annual data 

from the Census Bureau’s Current Population Survey.

Low-wage workers are people who are projected, under current law, to 

be paid less than $19 per hour in 2025.

Values for family income are based on annual data, whereas other 

values are based on monthly data. Although CBO estimates that the 

numbers of workers earning less than the new federal minimum wages 

considered in this report are the same in both sets of data, the share of 

workers paid less than $19 per hour in 2025 differs slightly. That share is 

31 percent in the annual data and 32 percent in the monthly data.

Family income groups are determined on the basis of before-tax family 

cash income. The definitions of income and of poverty thresholds are 

those used by the Census Bureau to determine the official poverty rate. 

CBO projects that in 2025, the poverty threshold (in 2018 dollars) will be 

$20,480 for a family of three and $26,330 for a family of four.
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 11

workers affected by the new minimum would see their 

hourly wage increase and be at some risk of joblessness. 

Finally, states with no state minimum wage in 2025 

would see the biggest effects from a higher federal minimum wage. Low-wage workers in those states would see 

significant increases in their hourly wages and, for that 

reason, be at greater risk for joblessness.

Macroeconomic Effects. Reductions in employment 

would initially be concentrated at firms where higher 

prices quickly reduce sales. Over a longer period, however, more firms would replace low-wage workers with 

higher-wage workers, machines, and other substitutes. 

Thus, CBO expects that the percentage reduction in 

employment of low-wage workers would generally rise 

over time for any given increase in the minimum wage. 

In the short term, an increase in the minimum wage can 

boost the employment of low-wage workers through 

changes in the economywide demand for goods and 

services. A higher minimum wage shifts income from 

higher-wage consumers and business owners to low-wage 

workers. Because low-wage workers tend to spend a 

larger fraction of their earnings, some firms see increased 

demand for their goods and services, which boosts the 

employment of low-wage workers and higher-wage 

workers alike. Those developments could have economic 

effects. For example, that increased demand could create 

inflationary pressure that the Federal Reserve would 

adjust interest rates to restrain. In any case, CBO expects 

that by 2025, the economic effects from increases in 

demand would completely dissipate.12

A decrease in the number of low-wage workers reduces 

the productivity of machines, buildings, and other 

capital goods. Although some businesses use more capital 

goods if labor is more expensive, that reduced productivity discourages other businesses from constructing new 

buildings and buying new machines. That reduction in 

capital reduces low-wage workers’ productivity, which 

leads to further reductions in their employment. 

12. CBO expects that the economic effects of increases in demand 

would completely dissipate by 2025 for two reasons. First, 

CBO projects that the economy will be close to its maximum 

sustainable output in 2025, which would limit how much 

employment could be affected by changes in overall demand. 

Second, because the options examined here would take until 

2025 to go into effect, the short-term effects of any boost to 

overall demand would have more time to dissipate.

Family Income

A higher minimum wage can affect family income in a 

variety of ways. Most directly, a higher minimum wage 

boosts income for the families of most low-wage workers, 

though a small share of low-wage workers may see their 

family income fall if they are jobless for an extended 

period. Minimum-wage increases affect family income 

through other channels as well, including effects on 

prices and business income.

Effects on Families of Low-Wage Workers. A higher 

minimum wage boosts the income of most families 

with low-wage workers (including those whose wages 

would otherwise be slightly above the new minimum) 

by increasing their earnings. A much smaller number of 

low-wage workers become jobless for some time because 

of the higher minimum wage, which causes their families 

to lose income. For families of low-wage workers, the 

effect of a higher minimum wage depends on how many 

such workers are in a family, whether those workers 

become jobless (and, if so, for how long), and whether 

there are other changes in family income. For instance, 

the decline in income from losing a job can be partly 

offset by increases in nonlabor income, such as unemployment compensation, or by increases in the work of 

other family members.

Income for any particular family is affected by whether 

and for how long family members become jobless. Some 

people who became jobless because of a minimum-wage 

increase would be out of work for many weeks, whereas 

others would be jobless for much shorter periods. To 

determine the length of time workers are jobless, CBO 

examined the duration of unemployment of workers in 

2018. In particular, CBO used that distribution as the 

basis for estimating the length of time that a person who 

became jobless because of an increase in the minimum 

wage would be out of work. 

Low-wage workers might face long-lasting reductions in 

family income if a minimum-wage increase keeps them 

from developing skills. For example, low-wage workers 

who are jobless because of a minimum-wage increase 

cannot acquire skills through formal on-the-job training 

or informal learning by doing. Reductions in training 

might occur even among employed workers if firms cut 

their spending on training to offset their higher payroll 

expenses. And a higher minimum wage might draw some 

workers who would otherwise attend school into the 
12 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

labor force. Those potential effects on family income are 

not accounted for in this analysis.

Effects on Businesses and Consumers. A higher minimum wage reduces the family income of business owners 

to the extent that firms’ profits are reduced. Those losses 

in business income are biggest in the first years after a 

higher minimum wage is introduced. Real income is also 

reduced for nearly all people because increases in the prices 

of goods and services weaken families’ purchasing power. 

Over time, as businesses increasingly pass their higher 

costs on to consumers, the losses in business income 

diminish and the losses in families’ real income grow.

Macroeconomic Effects. In the short term, raising the 

minimum wage would increase the economywide demand 

for goods and services, CBO expects. That is because the 

families with increased income—who tend to have lower 

income, on average—tend to boost their spending more 

than families with decreased income tend to reduce their 

spending. The increased demand for goods and services, in 

turn, would raise the nation’s output and income. 

In the long term, however, the key determinants of the 

nation’s output and income are the size and quality of 

the workforce, the stock of productive capital (such as 

factories and computers), and the efficiency with which 

workers and capital produce goods and services (known 

as total factor productivity). Raising the minimum wage 

would probably reduce employment, capital, and efficiency, in CBO’s assessment. Over time, those reductions 

would lower the nation’s output and income. 

In CBO’s analysis, the effects that increase the nation’s 

output, and therefore total family income, are larger in 

the short term than the effects that reduce output. As a 

result, the agency expects that the macroeconomic effects 

of a minimum-wage increase (separate from other effects 

of increasing the minimum wage) would boost family 

income slightly for a few years. By 2025, however, the 

long-term effects that reduce output would be larger. On 

balance, those two offsetting effects would cause a slight 

decrease in family income by 2025.

Effects of the Three Options on Employment 

and Family Income

CBO estimated how the three options for raising the 

minimum wage would affect employment and family 

income in 2025. In each case, increasing the minimum 

wage would have two main effects on low-wage workers. The large majority would have higher wages and 

family income, but a smaller group would be jobless for 

a long enough period that they would have lower family 

income. The options would affect other groups of people 

as well. The increased cost of retained workers would 

be borne by business owners and by consumers. The 

options would also affect savings and capital accumulation, which would further affect the income of business 

owners. 

Increasing the federal minimum wage could also affect 

the federal budget (see Box 1). However, CBO has not 

assessed those effects in this report.

Effects of the Options on Employment

CBO’s estimates of the effects on employment varied across the three options. In general, the size of the 

effects depends on the number of workers affected by 

the option and on the size of changes in wages induced 

by the higher minimum. Moreover, the options would 

alter employment more for some groups than others (see 

Table 3).

The $15 Option. Under the first option, according 

to CBO’s median estimate, about 1.3 million workers 

who would otherwise be employed would be jobless in 

an average week in 2025. That decrease would account 

for 0.8 percent of all workers and 7 percent of directly 

affected workers who would otherwise earn less than 

$15 per hour. Wages would rise, however, for 17 million 

directly affected workers who remained employed and 

for many of the 10 million potentially affected workers 

whose wages would otherwise fall slightly above $15 per 

hour—specifically, between the new federal minimum 

and that amount plus 50 percent of the increase in their 

applicable minimum wage. The higher wages for those 

potentially affected workers might lead to reductions 

in their employment, but some firms might hire more 

of those workers as substitutes for lower-paid workers 

whose wages had increased by larger amounts. Those 

two factors would roughly offset for those higher-wage 

workers, CBO anticipates.

The $15 option would alter employment more for some 

groups than for others. Almost 50 percent of the newly 

jobless workers in a given week—600,000 of 1.3 million—would be teenagers (some of whom would live in 

families with income well above the poverty threshold). 

Employment would also fall disproportionately among 

part-time workers and adults without a high school 

diploma.
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 13

There is considerable uncertainty about the option’s 

effect on employment. CBO estimates that there is a 

two-thirds chance that the change in employment would 

fall between about zero and a decrease of 3.7 million 

workers; thus, there is a one-third chance that the effect 

lies outside that likely range. The option’s effect on 

employment is uncertain for two main reasons. 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 option would induce 

both larger increases in wages and larger decreases in 

employment than CBO estimates. 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. There are other sources of 

uncertainty, but CBO expects that their effects would be 

small (for details, see Appendix A).

The $12 Option. Under the second option, according to 

CBO’s median estimate, about 0.3 million workers who 

would otherwise be employed would be jobless in an 

average week in 2025. That decrease would account for 

0.2 percent of all workers and 5 percent of the directly 

affected workers who would otherwise earn less than 

$12 per hour. Wages would rise, however, for 5 million 

directly affected workers who remained employed and 

for many of the 6 million potentially affected workers 

earning slightly more than $12 per hour.

The $12 option would have a smaller effect on employment than the $15 option, in CBO’s assessment, because 

it would affect fewer workers, because it would cause 

workers’ wages to rise by smaller amounts, and because 

employment would be less responsive to the wage 

Box 1.

How an Increase in the Minimum Wage Would Affect the Federal Budget

An increase in the federal minimum wage would directly affect 

the federal budget by requiring the government to increase 

wages for a small number of hourly federal employees. A minimum-wage increase would also indirectly affect the budget by 

boosting the prices of some goods and services purchased by 

the government. Most of those added costs for wages, goods, 

and services would need to be covered by discretionary appropriations. If discretionary appropriations were not increased, 

federal budget deficits would not be affected by the higher 

costs, but the benefits and government services that could 

be provided under those appropriations would be reduced. If, 

instead, lawmakers increased discretionary appropriations to 

cover the higher costs, then deficits would be larger. 

In addition, an increase in the federal minimum wage would 

indirectly affect the federal budget by changing people’s 

income and the prices consumers face. As a group, the workers 

whose earnings increased would pay more in taxes and receive 

less in benefits than they would have otherwise, reducing the 

federal budget deficit. However, the workers and business 

owners with reduced income would pay less in taxes and 

receive more in benefits, increasing the deficit. More broadly, 

the increase in prices and the resulting increases in nominal 

income associated with a higher minimum wage would also 

boost spending for some federal programs (because many 

parameters of such programs are indexed to increases in prices) 

and federal revenues (because revenues are closely tied to 

nominal income). The inflationary pressure created as a higher 

minimum wage was phased in could lead to higher interest 

rates, which could increase federal interest payments and have 

other budgetary effects.

Although the Congressional Budget Office has not estimated 

how the options in this report would affect the federal budget, 

the agency recently estimated the budgetary cost of the Raise 

the Wage Act (H.R. 582), which is very similar to the $15 option.1

CBO’s estimate included only the direct effects of raising the 

pay of a small group of federal employees who are paid an 

hourly wage. According to that estimate, over the next 10 years, 

the bill would increase spending subject to annual appropriation 

acts by $76 million and would increase mandatory spending of 

the Postal Service by $1 million. 

H.R. 582 would also boost the prices of some goods and services that the government purchases. Moreover, tax receipts 

and federal spending for health and income security programs 

would be indirectly affected as income increased for some 

people and fell for others. CBO has not estimated whether the 

net result of those indirect effects over the coming decade 

would be to increase or decrease budget deficits.

1. Congressional Budget Office, cost estimate for H.R. 582, Raise the Wage 

Act (April 22, 2019), www.cbo.gov/publication/55152. 
14 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

increases induced by the $12 option.13 CBO also expects 

that employment would respond less to a minimum 

wage that was not indexed. 

CBO estimates that there is a two-thirds chance the 

change in employment under this option would be 

between about zero and a reduction of 0.8 million workers. The primary sources of uncertainty again are wage 

growth and employment’s responsiveness to higher wages.

The $10 Option. Under the last option, CBO estimates 

almost no effect on employment in 2025. That is because a 

relatively small number of workers (1.5 million) would be 

affected, because wages would not rise much for those who 

were affected, and because CBO expects that employment 

would not respond much to a small wage change that was 

not indexed to inflation. CBO estimates that there is a twothirds chance that the change in employment would be 

between about zero and a reduction of 0.1 million workers.

Effects of the Options on Family Income

The most direct effect of the options would be to 

increase the earnings of workers while they are employed. 

That would increase family income. However, the 

options would have a number of other effects. Families 

would lose the earnings of family members who became 

jobless. The increased cost of employing retained workers 

would be absorbed by business owners (in the form of 

reduced profits) and by consumers (in the form of higher 

prices). But CBO also expects that the options would 

boost the productivity of workers by 20 percent of the 

increase in their earnings, with the benefits of that higher 

productivity accruing to businesses (meaning that profits 

would be reduced by less than they otherwise would) and 

to consumers (meaning that prices would increase less 

than they otherwise would). Finally, CBO estimates that 

the options would affect savings and capital accumulation, which would in turn affect the income of business 

owners. The size of those effects—both positive and 

negative—would vary across the three options.

The $15 Option. The first option would reduce total 

real income by about $9 billion in 2025, CBO estimates. 

13. For the $12 option, CBO’s median estimate of employment’s 

responsiveness to a change in the applicable minimum wage 

is 0.11 for teenagers, for example, which means that the 

employment of teenagers would be reduced by 1.1 percent after 

a 10 percent increase in the minimum wage. The equivalent 

estimate for the $15 option is 1.25 percent. See Appendix A for 

more information.

Table 3.

Effects of Increases in the Federal Minimum Wage on 

Employment and Weekly Earnings, by Group, 2025

Option

Group $15  $12  $10 

Change in Employment 

in an Average Week 

(Millions of workers)

All -1.3 -0.3 *

Age

16 to 19 -0.6 -0.2 *

20 or older -0.7 -0.1 *

Sex

Female -0.8 -0.2 *

Male -0.5 -0.1 *

Educational Attainment

Less than high school -0.5 -0.1 *

High school diploma or some college -0.8 -0.1 *

Bachelor’s degree or more -0.1 * *

Hours Worked per Week

Fewer than 35 -0.9 -0.2 *

35 or more -0.4 -0.1 *

Change in Weekly Earnings 

Among Directly Affected 

Workers (Percent)a

All 11.9 8.8 5.3

Age

16 to 19 0.3 3.9 3.3

20 or older 13.6 10.2 6.2

Sex

Female 12.3 8.8 5.3

Male 11.2 8.9 5.2

Educational Attainment

Less than high school 9.3 6.9 4.2

High school diploma or some college 12.4 9.5 5.8

Bachelor’s degree or more 12.2 9.3 5.8

Hours Worked per Week

Fewer than 35 11.9 8.6 5.0

35 or more 11.9 9.2 5.8

Source: Congressional Budget Office, using monthly data from the 

Census Bureau’s Current Population Survey.

The options would raise the minimum wage to $15, $12, and $10, 

respectively, in six steps between January 1, 2020, and January 1, 

2025. Under the $15 option, the minimum wage would then be indexed 

to median hourly wages; under the $12 and $10 options, it would not.

Directly affected workers are those whose hourly wage, in the absence 

of the change in the minimum wage, would range from just below the 

old minimum to the new, higher minimum.

* = between −0.05 million and 0.05 million.

a. Includes the effect of joblessness.
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 15

That net effect is due to the combination of factors 

described above:

• Real earnings for workers while they remained 

employed would increase by $64 billion,

• Real earnings for workers while they were jobless 

would decrease by $20 billion,

• Real income for business owners would decrease by 

$14 billion, and

• Real income for consumers would decrease by 

$39 billion.

Those changes in real income would not be distributed 

evenly across families at different income levels (see 

Table 4 and Figure 5). For families under the poverty 

line, this option would increase real family income by an 

average of $600 per year, or 5.3 percent. (In 2025, the 

poverty threshold will be roughly $20,500 in 2018 dollars 

for a family of three and $26,300 for a family of four, 

CBO projects.) Families with income between one and 

three times the poverty threshold would also see increases 

in family income, though the percentage changes would 

be smaller. The option would have virtually no effect on 

the real income of families with income between three 

and six times the poverty threshold. Finally, the option 

would reduce the real income of families with income 

more than six times the poverty threshold by an average 

of about $700 per year, or about 0.3 percent. 

Low-wage workers are not necessarily members of 

low-income families. Many low-wage workers are in 

families with high incomes—for instance, some lowwage workers are teenagers in high-income families. In 

particular, about 40 percent of low-wage workers are 

in families with income three times the poverty level 

or more (see Figure 6). According to CBO’s estimates, 

the increase in earnings for low-wage workers living in 

families with incomes more than three times the poverty 

threshold would be more than offset by income reductions, in part because losses in business income and in 

real income from price increases would be concentrated 

in those families.

The effects of the option on real family income would 

vary even among families with similar incomes. For 

example, low-income families with minimum-wage 

workers who remained employed would typically 

Table 4.

Effects of Increases in the Federal Minimum Wage on Average Annual Real Family Income, 2025

Change in Average Annual Real Family Income

Ratio of Family Income to 

the Poverty Threshold

Average Real Family Income 

(2018 Dollars)

$15 Option $12 Option $10 Option

Dollars Percent Dollars Percent Dollars Percent

Less Than 1.0 10,700 600 5.3 200 1.4 * 0.2

1.0 to 1.49 28,900 600 1.9 100 0.4 * **

1.5 to 1.99 39,200 500 1.2 100 0.2 * **

2.0 to 2.99 55,700 300 0.6 100 0.1 * **

3.0 to 5.99 95,300 * ** * ** * **

6.0 or More 232,800 -700 -0.3 -100 -0.1 * **

Source: Congressional Budget Office, using annual data from the Census Bureau’s Current Population Survey.

Income values are for annual real family income measured in 2018 dollars.

The options would raise the minimum wage to $15, $12, and $10, respectively, in six steps between January 1, 2020, and January 1, 2025. Under the 

$15 option, the minimum wage would then be indexed to median hourly wages; under the $12 and $10 options, it would not.

Values reflect changes in real (inflation-adjusted) before-tax family cash income. Those changes include increases in earnings for workers who would 

receive a higher wage, decreases in earnings for workers who would become jobless, losses in income for business owners, and decreases in income 

because of increases in prices. Results are weighted by the number of people in each family; for example, when CBO calculated the averages, a family 

of three would be represented three times.

The definitions of income and of poverty thresholds are those used by the Census Bureau to determine the official poverty rate. CBO projects that in 

2025, the poverty threshold (in 2018 dollars) will be $20,480 for a family of three and $26,330 for a family of four.

* = between −$50 and $50; ** = between −0.05 percent and 0.05 percent.
16 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

Figure 5.

Effects of Increases in the Federal Minimum Wage on Real Family Income, 2025

Billions of 2018 dollars

Change in Total Income b

Change in Income From 

Increases in Earnings for 

Low-Wage Workers a

−30

−20

−10

0

10

20

−30

−20

−10

0

10

20

−30

−20

−10

0

10

20

$15 Option

$12 Option

$10 Option

Less Than 1.0 1.0 to 1.49 1.5 to 1.99 2.0 to 2.99 3.0 to 5.99 6.0 or More

Less Than 1.0 1.0 to 1.49 1.5 to 1.99 2.0 to 2.99 3.0 to 5.99 6.0 or More

Less Than 1.0 1.0 to 1.49 1.5 to 1.99 2.0 to 2.99 3.0 to 5.99 6.0 or More

Ratio of Family Income to the Poverty Threshold

Source: Congressional Budget Office, using annual data from the Census Bureau’s Current Population Survey.

The options would raise the minimum wage to $15, $12, and $10, respectively, in six steps between January 1, 2020, and January 1, 2025. Under the 

$15 option, the minimum wage would then be indexed to median hourly wages; under the $12 and $10 options, it would not.

The definitions of income and of poverty thresholds are those used by the Census Bureau to determine the official poverty rate. CBO projects that in 

2025, the poverty threshold (in 2018 dollars) will be $20,480 for a family of three and $26,330 for a family of four.

a. Low-wage workers are people who are projected, under current law, to be paid less than $19 per hour in 2025.

b. Values reflect changes in real (inflation-adjusted) income. Those changes include increases in earnings for workers who would receive a higher 

wage, decreases in earnings for workers who would become jobless, losses in income for business owners, and decreases in income because of 

increases in prices.
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 17

see their income rise. For other low-income families, 

however, real income could decline slightly (because of 

higher prices) or significantly (because of higher prices 

combined with a family member’s joblessness).

CBO projects that the $15 option would reduce the 

number of people in poverty by about 1.3 million—a net 

effect of families moving both into and out of poverty. 

That estimate uses a measure of family income called 

cash income, which the Census Bureau uses to determine 

the poverty rate. Cash income includes earnings and cash 

transfers from the government, such as Supplemental 

Security Income benefits. It excludes noncash transfers, 

such as benefits from Medicaid and the Supplemental 

Nutrition Assistance Program; taxes; and tax credits, such 

as the earned income tax credit (EITC). (Because the 

EITC provides cash to many lower-income families, it is 

sometimes compared with the federal minimum wage in 

discussions about how to boost lower-income families’ 

resources; see Box 2.)

The people the $15 option would move out of poverty 

tend to come from specific groups (see Table 5). Almost 

60 percent would be adults without a high school 

diploma, and about 45 percent would be 18 years old or 

younger. Women would also be more likely than men to 

see their family income rise above the poverty threshold.

The $12 Option. The second option would reduce total 

real income by about $1 billion, CBO estimates. That 

net effect is again due to a combination of factors:

• Real earnings for workers while they remained 

employed would increase by $12 billion,

• Real earnings for workers while they were jobless 

would decrease by $3 billion,

• Real income for business owners would decrease by 

$3 billion, and

• Real income for consumers would decrease by 

$7 billion.

Families with income below or slightly above the poverty 

threshold would see their real income rise by an average 

of about $200 per year, or 1.4 percent. Changes in the 

real income of families at higher income levels would be 

very small. The option would move some people into 

poverty and others out of poverty, but on balance, the 

Figure 6.

Shares of Workers, by Family Income Group, 2025

Percent

Low-Wage 

Workers a

All 

Workers

0

10

20

30

40

Less Than 1.0 1.0 to 1.49 1.5 to 1.99 2.0 to 2.99 3.0 to 5.99 6.0 or More

Ratio of Family Income to the Poverty Threshold

Source: Congressional Budget Office, using annual data from the Census Bureau’s Current Population Survey.

Family income groups are determined on the basis of before-tax family cash income. The definitions of income and of poverty thresholds are those 

used by the Census Bureau to determine the official poverty rate. CBO projects that in 2025, the poverty threshold (in 2018 dollars) will be $20,480 for 

a family of three and $26,330 for a family of four.

a. Low-wage workers are people who are projected, under current law, to be paid less than $19 per hour.
18 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage July 2019

Box 2.

The Minimum Wage and the Earned Income Tax Credit

The earned income tax credit (EITC) provides cash assistance 

through the federal income tax system to low- and moderateincome families on the basis of their earnings, adjusted gross 

income, and family structure.1 EITC benefits increase as family 

earnings rise above zero up to a certain threshold (the phase-in 

range); when earnings reach that threshold, the benefits stop 

increasing; when earnings reach a higher point (the beginning of the phaseout range), the benefits decline; and when 

earnings are high enough, the benefits end.2 For a tax filer with 

three qualifying children, the maximum credit in 2025 will be 

$7,488. In 2025, the Congressional Budget Office projects, the 

earnings level at which EITC benefits will end will range from 

$17,785 for an unmarried worker without children to $63,920 

for a married couple with three or more children.

Differences Between the Minimum Wage and the EITC

An increase in the credit amount available in the EITC would go 

almost entirely to lower-income families, whereas an increase 

in the minimum wage raises earnings for many workers who 

are not in low-income families as well. For example, roughly 

40 percent of workers directly affected by the $15 option in 

2025 would be members of families with income more than 

three times the federal poverty threshold. 

The EITC increases the employment of people in low-income 

families—particularly custodial parents, for whom the EITC is 

most generous.3 However, increases in the supply of workers 

tend to reduce workers’ wages, which causes some of the benefit of the EITC to accrue to employers rather than to workers 

1. Adjusted gross income is income from all sources not specifically excluded 

from the tax code, minus certain deductions.

2. For a more extensive description of the EITC, see Congressional 

Budget Office, Refundable Tax Credits (January 2013), www.cbo.gov/

publication/43767.

3. See Bruce D. Meyer and Dan T. Rosenbaum, “Welfare, the Earned Income 

Tax Credit, and the Labor Supply of Single Mothers,” Quarterly Journal of 

Economics, vol. 116, no. 3 (August 2001), pp. 1063–1114, www.jstor.org/

stable/2696426.

themselves.4 In contrast, a higher minimum wage would 

reduce employment, in CBO’s assessment.

Different groups would bear the cost of boosting low-income 

families’ resources by increasing the minimum wage or 

increasing the EITC. An increase in the minimum wage would 

initially be paid for by business owners (in the form of reduced 

profits), by consumers (in the form of increased prices), and by 

workers who became jobless. Over time, the latter two groups 

would shoulder an increasingly greater share of the costs.

Increasing the EITC would require some combination of 

increased taxes, reduced spending in other areas, or larger 

budget deficits. If the increase was funded through an increase 

in taxes, the cost would be largely borne by taxpayers, but 

people with higher income—who pay more in taxes—would 

shoulder more of the cost. If the increase was funded through 

a reduction in spending, the cost would be borne by people 

who experienced reductions in the amount of goods and 

services provided by the federal government. And to the extent 

that the increase in the EITC was funded through larger deficits, the cost would be borne by people in the future.

Interactions Between the Minimum Wage and the EITC

An increase in the minimum wage would affect EITC benefits in 

different ways for different families. For families with income 

in the phase-in range of the EITC schedule, increased earnings would probably lead to additional EITC benefits (unless 

the increase in earnings pushed the family into the phaseout 

range of the EITC or beyond). But for families with income in 

the phaseout range, higher income from the higher minimum 

wage would be partly offset by reduced EITC benefits. Families 

with income between the phase-in and phaseout ranges would 

see no change in EITC benefits from a minimum-wage increase 

unless it moved their income into either range. 

4. See David Lee and Emmanuel Saez, “Optimal Minimum Wage Policy in 

Competitive Labor Markets,” Journal of Public Economics, vol. 96, no. 9 

(October 2012), pp. 739–749, http://dx.doi.org/10.1016/j.jpubeco.2012.06.001; 

and Jesse Rothstein, “Is the EITC as Good as an NIT? Conditional Cash 

Transfers and Tax Incidence,” American Economic Journal: Economic Policy, 

vol. 2, no. 1 (February 2010), pp. 177–208, www.jstor.org/stable/25760056.
July 2019 The Effects on Employment and Family Income of Increasing the Federal Minimum Wage 19

number of people below the poverty line would fall by 

0.4 million. Again, the effects would vary among families 

depending on their situation.

The $10 Option. The third option would reduce real total 

income by $0.1 billion, CBO estimates, and it would 

have similarly small effects on the distribution of family income. Low-income families would see their yearly 

income change by less than $50, on average, and the 

option would have a small effect on the number of people 

in poverty. The effects on family income would be small 

because the option would affect few workers and would 

not change earnings or employment much among those it 

did affect.

Uncertainty About the Estimates

The options’ effects on employment and family income 

are uncertain. Those effects depend on, among other 

things, how employment responds to higher wages, 

how much wages grow, and how long workers who lost 

their jobs would remain jobless. The more responsive 

employment is to an increase in the minimum wage, the 

less effective the policy would be at lifting families out 

of poverty. And if wages grew more quickly than CBO 

projects under current law, then fewer workers would be 

affected and fewer families would be lifted out of poverty. 

(If wages grew less quickly than CBO projects, then 

the opposite would occur.) Whether a smaller number 

of workers would be jobless for long periods or a larger 

number of workers would be jobless for short periods 

would also affect the distribution of family income. It is 

uncertain, however, whether differences in the duration of 

joblessness would affect the number of people in poverty.

Table 5.

Effects of Increases in the Federal Minimum Wage 

on the Number of People in Poverty, by Group, 

2025

Millions

Option

Group $15  $12  $10 

All -1.3 -0.4 *

Age

0 to 18 -0.6 -0.1 *

19 to 64 -0.7 -0.2 *

65 or older * * *

Sex

Female -0.7 -0.2 *

Male -0.6 -0.2 *

Educational Attainment

Less than high school -0.8 -0.2 *

High school diploma or some college -0.5 -0.2 *

Bachelor’s degree or more -0.1 * *

Hours Worked per Week

Fewer than 35 -0.3 * *

35 or more -0.4 -0.2 *

None (Children and nonworking adults) -0.7 -0.2 *

Source: Congressional Budget Office, using annual data from the Census 

Bureau’s Current Population Survey.

The options would raise the minimum wage to $15, $12, and $10, 

respectively, in six steps between January 1, 2020, and January 1, 

2025. Under the $15 option, the minimum wage would then be indexed 

to median hourly wages; under the $12 and $10 options, it would not.

Reported numbers are the difference between the number of people 

leaving poverty and the number entering poverty. 

* = between −0.05 million and 0.05 million.

APPENDIX

A

The Basis for CBO’s Findings

This appendix describes how the Congressional Budget 

Office estimated the effects of options for increasing the 

minimum wage on employment and on the distribution 

of family income. It also describes how the methods used 

in this report differ from those CBO used in a similar 

analysis in 2014.1

How CBO Estimated the Effects of the Options 

on Employment

CBO’s estimates of each option’s effects on employment 

were based on four underlying estimates. First, CBO 

estimated the number of workers likely to be affected 

by the option in 2025. Second, CBO made an assessment about the percentage by which low-wage workers’ 

employment would change in response to any percentage 

increase in the minimum wage. Third, CBO calculated 

the percentage change in the wages of the workers who 

would be affected by the option. Fourth, CBO examined 

the macroeconomic feedback effects—primarily effects 

on aggregate demand and capital accumulation. CBO’s 

estimates of each option’s employment effects result from 

multiplying the percentage change in affected workers’ 

wages by the responsiveness of employment, summing 

the employment effects across all affected workers, and 

then making any adjustments for the macroeconomic 

feedback effects.

How CBO Estimated the Number of Workers 

Affected by the Options

For each option, CBO estimated the number of workers 

who could be affected. Directly affected workers are those 

whose hourly wage, in the absence of the change in the 

minimum wage, would range from just below the old 

minimum to the new, higher minimum and who therefore 

would either receive a higher wage or become jobless if the 

new federal minimum were adopted. Potentially affected 

workers are those whose wages would otherwise be slightly 

1. Congressional Budget Office, The Effects of a Minimum-Wage 

Increase on Employment and Family Income (February 2014), 

www.cbo.gov/publication/44995. 

above the new federal minimum in 2025; their wages 

would also be affected by a higher minimum. CBO projects that such workers’ employment would not be affected 

by their newly higher wages, though it might be affected 

by changes in overall demand induced by the options.

Workers Directly Affected by Increases in the Minimum 

Wage in 2025. CBO estimated the number of directly 

affected workers in three main steps: determining hourly 

wages in 2018, projecting wages in 2025, and identifying 

the workers directly affected by a higher federal minimum wage in 2025. Those steps led CBO to conclude 

that the $15, $12, and $10 options would directly affect 

17 million, 5 million, and 1 million workers, respectively, in 2025.

In the first step, CBO estimated hourly wages in 2018 

using data from the Current Population Survey (CPS), 

which is jointly conducted by the Bureau of Labor 

Statistics and the Census Bureau. The CPS is designed 

to be representative of the U.S. civilian population as 

a whole; each observation in the survey represents a 

number of people, and that number is the observation’s 

“sample weight.” CBO used those sample weights to 

estimate hourly wages for workers in 2018 on the basis 

of the roughly 160,000 workers who were surveyed.

Many CPS respondents directly reported their hourly 

wage, and in such cases CBO used that information.2

But many other survey respondents did not report an 

hourly wage—many were not paid on an hourly basis—

and in those cases, CBO calculated their hourly wages 

as their usual earnings per week divided by their usual 

hours worked per week.3 Before making that calculation, 

CBO adjusted the CPS data on hours worked to correct 

2. If the Census Bureau imputed an hourly wage for a worker, CBO 

used that wage.

3. If the number of hours the respondents usually worked per week 

varied, CBO used the number of hours they reported having 

worked during the week before the survey. 

Appendix A
22 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

for measurement errors inherent in survey data.4 Those 

adjustments moved reported hours upward when they 

were particularly low and downward when they were 

particularly high.5 Because calculated wages are still 

subject to error, CBO further adjusted them by moving 

them closer to the mean wages of workers with similar 

characteristics.6

CBO also adjusted the data from the CPS to make it 

appropriate for an analysis of 2025 outcomes. In particular, CBO adjusted the sample to reflect the agency’s forecast of population growth between 2018 and 2025, both 

as a whole and separately for groups defined by sex, age, 

education, race and ethnicity, and employment status.

In the second step, CBO used those 2018 wages to 

forecast hourly wages in 2025. To do so, CBO projected 

wage growth rates separately for demographic groups 

defined by sex, education, and age. Those projections 

extrapolated average growth from 20 years of historical 

data.7 CBO then accounted for the effects on workers 

of future increases in some states’ minimum wages. The 

share of workers affected by such increases was estimated 

on the basis of current state law, including scheduled 

changes in state minimums, and how states have changed 

their minimum wages in the past. (CBO’s analysis did 

not account for localities’ minimum wages because the 

CPS does not identify the localities in which respondents 

work.) Finally, the overall growth in wages was adjusted 

to equal the agency’s forecast of aggregate wage growth. 

Altogether, CBO projected that nominal wages of 

4. For one discussion of measurement error in earnings, income, 

and wages, see Bruce D. Meyer, Wallace K. C. Mok, and James 

X. Sullivan, “Household Surveys in Crisis,” Journal of Economic 

Perspectives, vol. 29, no. 4 (Fall 2015), pp. 199–226, http://

dx.doi.org/10.1257/jep.29.4.199.

5. Extensive research has examined the accuracy of CPS-based 

measurements of hours worked. CBO relied most heavily on 

Harley Frazis and Jay C. Stewart, “Is the Workweek Really 

Overestimated?” Monthly Labor Review (June 2014), http://

go.usa.gov/xWPZW. 

6. That adjustment was based in part on findings from Thomas 

Lemieux, “Increasing Residual Wage Inequality: Composition 

Effects, Noisy Data, or Rising Demand for Skill?” American 

Economic Review, vol. 96, no. 3 (June 2006), pp. 461–498, 

http://dx.doi.org/10.1257/aer.96.3.461.

7. That extrapolation method provided projections that were as 

accurate—when compared with data on recent growth in wages—as 

more complex methods CBO evaluated, such as those that used data 

spanning a longer period or that were based on the relative supply of 

groups of workers estimated to have similar ages and skills.

low-wage workers would grow at an average annual rate 

of 3.5 percent between 2018 and 2025. 

In the third step, CBO identified workers who would 

be directly affected by a change in the federal minimum 

wage in 2025. Some directly affected workers would 

not be covered by the Fair Labor Standards Act (FLSA), 

which determines the federal minimum wage, but CBO 

expects that their wages would nevertheless be boosted 

by an increase in the federal minimum. That group consists of employees of some firms with less than $500,000 

in annual revenues and workers in occupations generally 

exempt from the FLSA.8 The directly affected group does 

not include workers whose wages were below their applicable minimum in 2018—in CBO’s assessment, such 

workers either are exempt from the FLSA or work for 

employers that do not comply with the FLSA. In either 

case, CBO expects that the wages and employment of 

those workers would not be affected by a change in the 

federal minimum wage.9 CBO projects that there will be 

4.6 million such workers in 2025.

Because the $15 option would modify the minimum 

wage for tipped, teen, and disabled workers, CBO identified people in each of those groups. CBO identified 

tipped workers as those in any of 11 occupations (such 

as waiters, bartenders, and hairdressers) whose compensation depends heavily on tips; using that definition, 

roughly 1.5 million tipped workers would be directly 

affected by the $15 option in 2025. CBO identified 

teenagers using reported age; in 2025, about 2.9 million 

teen workers would be directly affected by the option. 

CBO identified CPS workers as disabled if they answered 

“yes” to any one of five questions about disability in the 

monthly CPS survey. Although the FLSA defines disabled workers differently, the CPS-based estimate of the 

number of disabled workers earning less than the current 

minimum wage is similar to the number of exemptions 

granted by the Department of Labor—about 125,000. 

8. Department of Labor, “Wages and Hours Worked: Minimum 

Wage and Overtime Pay” (accessed February 21, 2019), https://

webapps.dol.gov/elaws/elg/minwage.htm.

9. To project the percentage of low-wage workers who would not 

be covered or affected by the FLSA in 2025, CBO estimated the 

number of workers earning less than their applicable minimum 

(the federal minimum or a higher state minimum) in 2018. 

The agency concluded that nontipped workers who reported 

being paid up to 25 cents less and tipped workers who reported 

being paid a cash hourly wage up to 13 cents less had probably 

misreported their wages; therefore, it did not count such workers 

as being paid less than the minimum wage.
APPENDIX A THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 23

Workers Potentially Affected by Increases in the 

Minimum Wage in 2025. A minimum-wage increase 

could have positive or negative effects on the wages and 

employment of potentially affected workers, depending 

on whether their value to employers rose or fell when 

lower-wage workers became more expensive to employ. 

Available research, however, suggests that the average 

effects on the wages of those workers would be positive. 

(See Appendix B for a list of studies that CBO reviewed.)

In its analysis, CBO estimated that the options would 

have ripple effects on workers whose wages would 

otherwise fall between the minimum wage specified in 

the option and that minimum plus 50 percent of the 

increase in their applicable minimum wage. That is, 

wages for those workers would increase as employers 

sought to retain some of the differences in pay that had 

existed between those workers prior to the increase in the 

minimum wage. For instance, in states where the current 

minimum wage is $7.25, CBO anticipates that many 

workers earning up to $19 per hour would be affected by 

the $15 option.10 In states with a higher minimum wage, 

the ripple effect would apply to a smaller range of wages. 

CBO projects, for example, that the minimum wage 

in Oregon will be $14.55 in July 2025, and the agency 

therefore estimates that workers earning up to $15.21 

per hour in that state would be affected by a federal 

minimum of $15. In 2025, there would be 10.3 million potentially affected workers under the $15 option, 

6.4 million under the $12 option, and 1.9 million under 

the $10 option. Most of those potentially affected workers would receive a small wage increase, CBO’s projects, 

but their employment is unaffected.

Uncertainty About the Estimates. Estimates of the 

number of directly and potentially affected workers are 

uncertain for a number of reasons. Most importantly, 

CBO’s forecast of wage growth under current law could 

be too high or too low, which would lead to an underestimate or an overestimate, respectively, of the number of 

affected workers. If wages grow more quickly, for example, then fewer workers would be affected by an increase 

in the federal minimum wage and the effect on employment and wages would be smaller than CBO has estimated. By contrast, if wage growth is slower than CBO 

projects, then more workers would be directly affected by 

higher minimum wages and the options’ effects on both 

10. Thus, CBO refers to workers with wages up to $19 per hour in 

2025 as low-wage workers in this report.

wages and employment would be larger than CBO has 

estimated. There are other, probably less consequential, 

sources of uncertainty as well—for instance, CBO may 

have misidentified which workers are covered by the 

FLSA, the share of workers affected by changes in states’ 

minimum wage laws could differ from CBO’s projections, and ripple effects could affect a smaller or larger 

number of workers than CBO projects. 

How CBO Estimated the Responsiveness of 

Employment to Increases in Minimum Wages

The responsiveness of employment to a change in the 

minimum wage is generally represented by an employment elasticity. An elasticity of zero implies that employment does not respond at all; a negative elasticity implies 

that employment falls with an increase in the minimum 

wage; and a positive elasticity implies that employment 

rises. As measured elasticities move further from zero, the 

implication is that employment is increasingly responsive 

to changes in the minimum wage. An elasticity of 0.10, 

for example, implies that a 10 percent increase in the 

minimum wage would raise employment by 1 percent, 

whereas an elasticity of –0.40 implies that the same 

increase in the minimum wage would reduce employment by 4 percent.

Much research on employment elasticities has focused 

on elasticities for all teenagers, regardless of whether 

they would be directly affected by minimum-wage 

increases. That focus on teenagers was driven by the 

fact that a disproportionately large share of teens has 

been directly affected by past minimum-wage changes, 

which has made it easier to detect effects on employment in that population. CBO reviewed the literature to 

determine employment elasticities for all teenagers and 

then adjusted those elasticities to arrive at elasticities for 

directly affected teenagers.

A growing but still small body of research has focused 

on employment elasticities for the broader population 

of affected workers—both teenagers and adults with 

low wages. That research has identified groups at risk 

for reductions in employment because of their industry 

(particularly restaurant workers), educational attainment 

(typically those with no postsecondary education), or 

hourly wage itself. CBO reviewed this more recent literature to determine employment elasticities for directly 

affected adults. (See Appendix B for a bibliography of the 

research that CBO reviewed.)
24 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

CBO concluded that the options would not have a 

significant net effect on the employment of potentially 

affected workers, either teen or adult. On the one hand, 

wages would probably rise for some potentially affected 

workers (such as the supervisors of minimum-wage 

workers) whose employers sought to maintain a differential between their wages and those of employees earning 

the minimum wage, and that wage increase would tend 

to lower employment. On the other hand, some firms 

would probably employ more workers with wages higher 

than the new minimum because their productivity relative to their wages would be higher than that of workers 

whose wages had been pushed up to the new minimum. 

On balance, in CBO’s assessment, those opposing factors 

would offset each other.

Elasticities for All Teenagers. In CBO’s assessment, the 

most convincing estimates of employment elasticities 

are based on a comparison of rates of employment or 

employment growth in states that have different minimum wages but otherwise similar labor markets. Many 

recent studies of changes in the minimum wage have 

taken that approach as state-level minimum wages have 

become more prevalent in the past decade, and CBO 

gave those studies special attention. The agency views 

such studies as particularly relevant if they compare states 

that had their minimum wage increased by federal law 

with states that were not affected by a new federal minimum because their minimum wage exceeded it. CBO 

also referred to studies that compared rates of employment or employment growth among localities with 

different minimum wages. By contrast, CBO put less 

emphasis on studies based on changes in the entire economy over time, international comparisons, or changes 

in the prices and quantities of goods and services produced by low-wage workers (which can provide indirect 

evidence about employment). 

Most research defines the employment elasticity (e) as 

the percentage change in employment (%∆E) of workers induced by a percentage change in the applicable 

minimum wage (%∆MW), as shown in the following 

equation (Equation 1):

Virtually all the studies CBO reviewed estimated 

that elasticity by comparing employment changes in 

places that had increased their minimum wage with 

employment changes in places that had not. In its review, 

however, CBO found substantial differences across 

studies in the details of how the elasticity was estimated. 

In particular, studies varied in the time period they 

analyzed, in the type of minimum-wage change they 

studied (federal, state, or local), in the size of the increase 

in the minimum they analyzed (sometimes small and 

sometimes as large as 25 percent), and in the data sources 

they examined. Even more important, studies varied in 

the states or areas they used as control groups—that is, 

the places compared with the states or areas where the 

minimum wage increased. Some studies used neighboring states, others used all states, whereas still others chose 

control areas on the basis of statistical analyses. 

In CBO’s assessment, for the average change in the 

minimum wage studied in the literature, the employment elasticity for teenage workers is −0.07. That value is 

CBO’s median estimate of the elasticity that would apply 

in the short run (one year after the implementation of 

the higher minimum wage) to a minimum-wage change 

that was close to the average of past changes. CBO used 

its own synthesis of the research literature as the basis of 

that estimate, recognizing that there is no consensus in 

that literature as to the size, or even the sign, of the teen 

employment elasticity and that there is publication bias 

in that literature. (Publication bias is the tendency of academic journals to publish studies that show statistically 

significant effects.) As a point of comparison, CBO’s 

median estimate lies within the lower part of the range 

of teen employment elasticities estimated in one recent 

meta-analysis.11

In CBO’s view, however, the teen employment elasticity 

applicable to any given option varies from that median 

elasticity depending on four factors. First, employment 

elasticities are higher when more workers are affected. 

Employers are more likely to reduce the number of 

employees if wages increase for a substantial fraction 

of their workforce. By contrast, employers may merely 

absorb higher costs or pass them on to consumers if the 

higher minimum affects a small share of their workforce.

Second, employment elasticities are higher when the new 

minimum wage mandates a larger increase for affected 

workers. Employers are more likely to modify their 

business practices—including employment—when there 

11. Paul Wolfson and Dale Belman, “15 Years of Research on U.S. 

Employment and the Minimum Wage,” Labour (forthcoming).
APPENDIX A THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 25

is a large change in the cost of labor. This point applies 

even to employers that have monopsony power and 

must raise wages of current workers to hire additional 

workers. Moreover, that monopsony power itself tends to 

diminish when the minimum wage is sufficiently high. 

Those employers might not cut back on their number of 

employees (and might even hire more) in response to a 

small minimum-wage increase, but they would reduce 

employment if the minimum wage increased by a large 

enough amount.

Third, employment elasticities are higher when firms 

have more time to respond to an increase in the minimum wage. In the short run, employers may view buildings, machines, and other forms of capital as fixed. In the 

longer run, however, employers can change the size of 

their buildings, the number of machines they deploy, and 

the number of higher-wage workers they employ, and 

those changes typically lead the employment of low-wage 

labor to respond more to an increase in the minimum 

wage than it would in the short run.

Fourth, employment elasticities are higher when minimum wages are indexed to inflation or wage growth. 

Indexation makes the increase permanent in real terms, 

and employers are more responsive to permanent changes 

in the price of inputs to production, such as labor.12

After considering those factors, CBO concluded that the 

elasticities of teen employment applicable to the analysis of the three options would differ from the short-run 

elasticity of −0.07 that was based on CBO’s assessment 

of the literature. In particular, CBO’s median estimates 

of the teen elasticities for 2025 are −0.128, −0.111, and 

−0.100 for the $15, $12, and $10 options, respectively 

(see Table A-1). The differences arise because the options 

differ from the average minimum-wage change of the 

past and because a short-run analysis would not apply to 

the 2025 projection.

All of the options would be implemented over a five-year 

period—longer than most of the increases that have been 

12. For discussions of this relationship, see Isaac Sorkin, “Are There 

Long-Run Effects of the Minimum Wage?” Review of Economic 

Dynamics, vol. 18, no. 2 (April 2015), pp. 306–333, https://

doi.org/10.1016/j.red.2014.05.003; and Peter Brummund and 

Michael R. Strain. “Does Employment Respond Differently to 

Minimum Wage Increases in the Presence of Inflation Indexing?” 

Journal of Human Resources (forthcoming), http://dx.doi.

org/10.3368/jhr.55.2.1216.8404R2.

Table A-1.

Employment Elasticities Estimated by CBO for 2025, by Age Group

Adults Teenagers

$15 Option $12 Option $10 Option $15 Option $12 Option $10 Option

Employment Elasticities for All Workers in an Age Group With Respect to the Change in the Minimum Wage

Median Estimate -0.004 -0.004 -0.003 -0.128 -0.111 -0.100

Likely Rangea

Low end * * * * * *

High end -0.013 -0.011 -0.010 -0.255 -0.222 -0.201

Employment Elasticities for Directly Affected Workers in an Age Group With Respect to the Change in Their Own Wage

Median Estimate -0.269 -0.234 -0.212 -0.829 -0.721 -0.653

Likely Rangea

Low end * * * * * *

High end -0.806 -0.701 -0.635 -1.658 -1.442 -1.306

Source: Congressional Budget Office.

The options would raise the minimum wage to $15, $12, and $10, respectively, in six steps between January 1, 2020, and January 1, 2025. The $15 

option would then be indexed to median hourly wages; the $12 and $10 options would not.

Directly affected workers are those whose hourly wage, in the absence of the change in the minimum wage, would range from just below the old 

minimum to the new, higher minimum.

* = between −0.0005 and 0.0005.

a. In CBO’s estimation, there is a two-thirds chance that the elasticity would be within this range. 
26 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

studied in the literature, which would give employers 

more time to respond. The elasticity for each option 

would exceed that for the average historical increase in 

the minimum wage largely because of that lag. Variations 

among the other three factors cause the elasticities CBO 

used for the three options to differ from one another. 

The $15 option has the largest elasticity, in CBO’s assessment, because it would induce the largest wage increases 

for the most workers and because it would index the 

minimum wage to subsequent wage growth. The $12 

option has a smaller elasticity because it would affect 

fewer workers, because it would increase their wages 

less than the $15 option would, and because it would 

not index the minimum wage to wage growth. The 

$10 option has the smallest elasticity because it would 

affect the smallest number of workers, because it would 

increase wages by the smallest amounts, and because it 

would not be indexed. 

Modified Elasticities for Directly Affected Teenagers. 

The elasticities above (those typically estimated in the 

literature) apply to all teen employment; CBO made 

two adjustments before using them to calculate employment changes. First, CBO expects that any decline in 

employment induced by a higher minimum wage would 

be concentrated among directly affected workers. CBO 

therefore translated the employment elasticity for all 

teenagers to account for the fact that not all teenagers 

would be directly affected.

Second, CBO modified the elasticities so that they relate 

employment to the change in workers’ wages rather than 

to the change in the minimum wage itself. Consider a 

worker making $12 per hour where the minimum wage 

is $7.50. Raising the minimum to $15 would double 

the minimum wage but would raise that worker’s wage 

by only 25 percent. The elasticities in the literature are 

typically scaled to the increase in the statutory minimum wage, but that approach can yield misleading 

estimates of employment changes. For example, using 

that approach in a projection of the $15 option, it would 

make no difference whether most workers would otherwise have earned $7.25 or $14.99. That approach also 

regards all directly affected workers as equally likely to 

experience changes in their employment after a minimum-wage increase. By contrast, CBO expects that 

workers whose wages were just below the new minimum 

would be more likely to remain employed than workers 

with substantially lower earnings. CBO’s approach 

accounts for the distribution of workers’ wages and for 

the differences in the likelihood of losing one’s job.

CBO made those modifications by multiplying the 

elasticities drawn from the literature by the inverse of 

the portion of employed teenagers directly affected by 

past minimum-wage changes (Pdirect) and by the ratio of 

the percentage change in the applicable minimum wage 

(%∆MW) to the average percentage change in the wages 

of directly affected teenagers (%∆Wdirect).13 The following 

equation (Equation 2) shows the calculation:

Historically, increases in the minimum wage have 

directly affected about one-quarter of employed teenagers, and the change in wages was about 60 percent of 

the change in the statutory minimum wage. Thus, the 

elasticities for directly affected teenagers with respect 

to their own wage change are about 6.5 times higher, 

CBO estimates, than the elasticities for all teenagers with 

respect to the change in the minimum wage itself (those 

typically estimated in the literature). By construction, of 

course, that higher elasticity for directly affected teenagers with respect to their own wage change applies to 

a smaller wage change and to a more narrowly defined 

population.

Elasticities for Directly Affected Adults. Whereas a relatively large share of teenagers are minimum-wage workers, minimum-wage changes tend to affect a very small 

share of adults, which means that small, proportionate 

changes in the employment of affected adult workers 

would probably be masked by other fluctuations in adult 

employment, such as regional or national business cycles. 

Yet teenagers account for only about one-third of the 

workers affected by the typical minimum-wage increase. 

If the employment of adults responds differently from 

that of teenagers, then using the teen elasticity for all 

workers would lead to incorrect estimates. 

13. A similar conversion was used in Charles Brown, “Minimum 

Wages, Employment and the Distribution of Income,” in Orley 

Ashenfelter and David Card, eds., Handbook of Labor Economics, 

vol. 3B (Elsevier, 1999), pp. 2101–2163, http://tinyurl.com/

mmkdrme, and in David Neumark and William L. Wascher, 

Minimum Wages (MIT Press, 2008), http://mitpress.mit.edu/

books/minimum-wages.
APPENDIX A THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 27

To better inform its analysis of adults, CBO reviewed a 

number of recent papers that have studied the effects of 

minimum-wage changes on affected workers of all ages. 

The newer literature has focused its attention on subsets 

of workers that are particularly likely to be affected by 

a change in the minimum wage. Some of those studies 

looked at specific industries, such as the restaurant industry, but CBO’s views were most informed by studies that 

examined employment among workers deemed to be 

affected—or not—by changes in the minimum wage on 

the basis of their hourly wage.

CBO’s review focused specifically on 11 studies that 

reported short-run employment elasticities for all or 

most directly affected workers (see Table A-2).14 The 

minimum-wage changes analyzed in most of those studies roughly reflected historical increases, but in several 

instances the changes analyzed were larger than average. 

For each of the 11 studies, CBO endeavored to identify 

the authors’ preferred estimate of the short-run employment elasticity for all directly affected workers, in several 

cases contacting the authors for clarification. There is 

considerable variation in those elasticities. Several are 

positive, indicating that a higher minimum wage would 

boost employment. Most of the estimated elasticities are 

negative, however, including several in the range of −1.5, 

which would imply that a 10 percent increase in the 

wages of affected workers would reduce their employment by 15 percent. 

Drawing on its review of those 11 studies, CBO formed 

a median estimate of −0.25 for the short-run employment elasticity for all directly affected workers (both 

teenagers and adults) for a historically representative 

change in the minimum wage. CBO reports median 

estimates to account for the potential asymmetry of the 

response. The agency concluded that there is a onethird chance that the elasticity would be between about 

14. CBO included one study focused on the restaurant industry 

because the agency determined that its findings might be relevant 

to most industries that employ affected workers; see Daniel 

Aaronson and others, “Industry Dynamics and the Minimum 

Wage: A Putty-Clay Approach,” International Economic 

Review, vol. 59, no. 1 (February 2018), pp. 51–84, https://doi.

org/10.1111/iere.12262. CBO did not include a study that 

examined most directly affected workers because the agency could 

not synthesize its findings on continued employment and hiring 

into one elasticity estimate; see Ekaterina Jardim and others, 

Minimum Wage Increases, Wages, and Low-Wage Employment: 

Evidence from Seattle, Working Paper 23532 (National Bureau of 

Economic Research, May 2018), www.nber.org/papers/w23532.

zero and −0.25 and a one-third chance that it would be 

between −0.25 and −0.75. That is, the response could be 

smaller or substantially larger.

Although CBO’s median estimate was informed by the 

results from the 11 most applicable studies, the information they provide about that median is uncertain, and 

Table A-2.

Employment Elasticities for All Directly Affected 

Workers, by Study

Study

Short-Run 

Elasticities

Ratio of LongRun to ShortRun Elasticities

Cengiz and others (2019) 0.4 1.0

Cengiz (2019) 0.3 1.0

Derenoncourt and Montialoux (2018) 0.2 1.0

Bailey, DiNardo, and Stuart (2018) -0.1 2.0

Aaronson, French, and Sorkin (2018) -0.2 2.0

Neumark, Schweitzer, and Wascher (2004) -0.2 n.a.

CBO’s Median Estimate -0.25 1.5

Gopalan and others (2018) -0.9 n.a.

Monras (2019) -1.0 1.5

Meer and West (2015) -1.2 1.7

Jardim and others (May 2018) -1.7 n.a.

Clemens and Wither (2016) -1.7 n.a.

Source: Congressional Budget Office.

The employment elasticity shown here is the ratio of the percentage 

change in employment of directly affected workers to the percentage 

change in those workers’ wages mandated by an increase in the 

minimum wage. Directly affected workers are those whose hourly wage, 

in the absence of the change in the minimum wage, would range from 

just below the old minimum to the new, higher minimum. Mandated 

changes in wages exclude any changes that do not directly result from 

the change in the federal minimum wage (for example, changes in 

wages that occur because employers seek to maintain differentials in 

wages for employees in different positions). 

An elasticity of zero implies that employment does not respond; a 

negative elasticity implies that employment falls with an increase in 

the minimum wage; and a positive elasticity implies that employment 

rises. As an example of how to interpret elasticities, an elasticity of −0.2 

implies that a minimum-wage change that increased directly affected 

workers’ wages by 10 percent would also reduce their employment by 

2 percent.

Elasticities in this table apply to all directly affected workers, regardless 

of age.

The ratio of long-run to short-run elasticities could not be calculated in 

some instances—usually because a long-run elasticity was not available.

For full references, see Appendix B.

n.a. = not available.
28 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

the agency’s estimate reflects consideration of four additional factors. First, sensitivity analyses using resampling 

from the distribution of the 11 estimates in those studies 

suggested that the median might be higher if a study 

was added or subtracted from the set considered. For 

example, the elasticities from the 3 studies in the middle 

of the distribution of those 11 were −0.20, −0.20, and 

−0.90; if the middle value was removed, the median estimate would be −0.55. Second, as mentioned above, there 

is evidence of publication bias in the minimum-wage 

literature, suggesting that the published elasticities might 

systematically overstate the true elasticity. Third, several 

of the studies considered minimum-wage changes that 

were larger than the average historical change, which 

would probably cause their reported elasticities to be 

higher than average. Fourth, other research suggests that 

the adult elasticity is probably no higher than the teen 

elasticity, and a much larger literature has studied the 

teen elasticity.

CBO concluded that, for projecting effects in the future, 

its synthesis of the research findings would be more useful than a meta-analysis combining point estimates from 

studies weighted by their precision. CBO’s approach 

allowed it to focus on the median estimate and to 

account for the four additional factors just discussed. In 

addition, in CBO’s view, most of the uncertainty about 

the accuracy of estimates from various studies arises from 

uncertainty about study design and external validity—issues not readily addressed by precision-weighted 

meta-analytic methods—rather than from the statistical 

precision of their reported results.

Evidence on longer-run effects—applicable for three 

years after a given option was implemented—were 

available in only a subset of studies that CBO reviewed. 

To obtain a median estimate of the long-run elasticity 

that reflected studies both with and without long-run 

estimates, CBO first calculated the ratio of long-run 

to short-run elasticities for the subset of studies with 

both types of estimates. CBO again found considerable 

variation in the ratios of long-run to short-run elasticities, some as low as 1 (implying no difference between 

short- and long-run elasticities) and others as high as 

2, with the median being 1.5. As with the short-run 

elasticities, CBO used resampling methods to gauge 

the methods’ sensitivity to the inclusion of any given 

study; that analysis supported the use of a value of 1.5. 

CBO then obtained its median estimate of the long-run 

elasticity by applying that ratio to its median estimate 

of the short-run elasticity. That process led CBO to a 

median estimate of −0.38 for the long-run elasticity for 

all directly affected workers. 

The direct elasticities in Table A-2 apply to all affected 

workers—both adults and teenagers. To estimate direct 

elasticities specifically for adults, CBO used the fact that 

the elasticity for all affected workers can be viewed as a 

weighted average of the teen and adult elasticities. After 

estimating the options’ teen elasticities and the teen 

share of directly affected workers, as discussed above, 

CBO used that information to calculate estimates of 

the long- and-short-run direct elasticities for adults for 

each option. CBO’s median estimates of the direct adult 

elasticity for 2025 were −0.27, −0.23, and −0.21 for the 

$15, $12, and $10 options, respectively.

Equation 1 above and the adjustment factors for adults 

can be used to calculate the type of elasticities familiar 

from the literature on teen employment. In this case, 

however, those elasticities relate the change in employment for all adults to the change in the minimum wage 

itself. (The conversion factors are much larger than those 

used for teenagers because a much smaller share of adults 

are affected.) Those adult elasticities for 2025 are −0.004, 

−0.004, and −0.003 for the $15, $12, and $10 options, 

respectively—less than one-tenth the size of the corresponding teen elasticities of −0.128, −0.111, and −0.100. 

(The elasticities that CBO used in its analysis differ from 

those in that they relate the employment change for 

directly affected workers to the change in those workers’ 

wages.)

Uncertainty About the Estimates. There is considerable 

uncertainty about how the employment of either teens or 

adults responds to changes in the federal minimum wage. 

That uncertainty comes from three distinct sources. 

First, as noted in the discussion of adult direct elasticities 

above, findings on the subject vary widely. Many studies have found little or no effect of minimum wages on 

employment, but many others have found substantial 

reductions in employment. The variation across studies 

arises in part because comparing one state (or locality) 

to another requires that researchers make a number of 

decisions: What state (or localities) will serve as the basis 

for comparison? How will a researcher account for trends 

in employment and wages that were already occurring 

when the minimum wage increased? Does the researcher 

address the possibility that states consider how their 

economy is performing when choosing to raise their 
APPENDIX A THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 29

minimum wages? And does the researcher consider that 

increases in the federal minimum wage mainly affect 

states that have chosen not to increase their minimum 

wage? Researchers have answered those questions in 

different ways, and those different answers lead to different results. CBO reviewed studies with a wide range of 

methods and findings in developing its own estimates of 

the teen and adult employment elasticities.

Second, there is uncertainty about how to best use 

studies of state and local minimum wages to inform 

estimates of elasticities under a national minimum-wage 

policy. The elasticity for state minimum wages might be 

higher than the national elasticity, for example, because 

employers can more easily shift employment across states 

than across nations. The state-level elasticity might be 

lower than the national elasticity, however, if nationwide 

employers are reluctant to change their business model—

say, by deploying more capital and less labor—to best fit 

each of tens or even hundreds of state and local policies, 

even though they would do so in response to a national 

minimum wage. The literature has produced little 

convincing evidence on how state and local elasticities 

translate to national elasticities. Because of that uncertainty, CBO tended to place more weight on studies 

that examined how state-level employment is affected by 

changes to the federal minimum wage.

Third, as mentioned above, there is evidence of publication bias in the studies that CBO reviewed. Academic 

journals tend to publish studies that show statistically 

significant effects. Multiple researchers have found that 

this tendency has skewed the published literature toward 

concluding that an increase in the minimum wage 

reduces employment. CBO used that information to 

reduce its estimates of the elasticities for both teenagers 

and adults. There is considerable uncertainty, however, 

about how to account for publication bias when estimating employment elasticities, so CBO’s adjustments for 

publication bias could be too big or too small.

To reflect those sources of uncertainty, CBO developed 

a range of elasticities relating the change in employment 

for all teenagers to the change in the minimum wage 

itself (that is, similar to those typically estimated in the 

literature) for each option (see Table A-1). In each case, 

that range covers two-thirds of what CBO estimates is 

the total range of possible outcomes for teen employment—including CBO’s median estimate. For the 

$15 option, that range is from about zero to −0.255, 

with a median estimate of −0.128. For the $12 option, 

that range is from about zero to −0.222, with a median 

estimate of −0.111. For the $10 option, that range is 

from about zero to −0.201, with a median estimate of 

−0.100. 

Regarding the elasticity for directly affected teenagers 

with respect to their own wage change, for the $15 

option the range is from about zero to −1.658, with a 

median estimate of −0.829. For the $12 option, that 

range is from about zero to −1.442, with a median 

estimate of −0.721. And for the $10 option, that range 

is from about zero to −1.306, with a median estimate of 

−0.653. CBO incorporated those ranges of estimates into 

its calculations of the range of possible outcomes presented in the body of this report. 

CBO addressed uncertainty about the direct elasticity for 

adults in a somewhat different fashion. The possibility of 

large negative elasticities led CBO to conclude that the 

range that would cover two-thirds of possible elasticities 

is asymmetric. For example, CBO estimates that there is 

a two-thirds chance that the employment elasticity for 

directly affected adults would range between about zero 

and −0.806 for the $15 option, with a median estimate 

of −0.269. CBO incorporated that range, along with its 

range of elasticities for teenagers, into its calculations of 

the range of possible outcomes presented in the body of 

this report. 

How CBO Estimated Increases in the Wages of 

Directly Affected Workers

Taking its projection of wages in 2025 as a baseline, 

CBO calculated the wage increase required to bring 

each directly affected worker into compliance with the 

new minimum wage. CBO then used the increase and 

the baseline wage to calculate the percentage changes in 

directly affected workers’ wages (before accounting for 

any reductions in employment). Under the $15 option, 

CBO projects average increases of 28 percent for directly 

affected teenagers and 19 percent for directly affected 

adults. The projected changes are smaller under the $12 

option, amounting to increases of 17 percent for teenagers and 13 percent for adults. The projected changes are 

smaller still for the $10 option, amounting to increases 

of 7 percent for teenagers and 7 percent for adults. All 

those changes are much smaller than the percentage 

changes in the statutory minimum wage that would be 
30 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

mandated by each option because most affected workers 

in 2025 would earn more than $7.25 under current law.

How CBO Estimated Effects on Overall Demand 

and Capital Accumulation

CBO examined two channels through which a higher 

minimum wage might affect the overall economy and, 

by extension, employment. The first macroeconomic 

feedback effect involves increases in overall demand. The 

second channel, which tends to work in the opposite 

direction, involves slowdowns in capital accumulation. 

Overall Demand. Each of the options would shift, on 

net, income toward families with lower income. In the 

short run, that shift of income would increase overall 

demand because lower-income families spend a larger 

proportion of any additional income on goods and 

services than do families with higher incomes and higher 

savings rates. However, CBO projects that output will be 

near its maximum sustainable amount by 2025, which 

would limit the effect of greater overall demand on 

employment.15 Moreover, an increase in demand under 

those conditions would create inflationary pressure, 

and CBO expects that the Federal Reserve would adjust 

short-term interest rates to prevent inflation from rising 

above the central bank’s long-term goal. Those higher 

interest rates would offset the boost in overall demand 

that might otherwise result from the net shifts in income 

induced by the options. The effects of interest rate 

increases would probably lag behind the initial boost in 

overall demand. Thus, the effect on employment through 

the overall-demand channel would be strongest in the 

first few years after an option went into effect before 

being counteracted by monetary policy. However, even 

during that initial period, the effect of increased demand 

would be relatively small. For instance, CBO estimates 

that several thousand fewer workers would be jobless in 

2022 under the $15 option because of the effect.

Capital Accumulation. The higher labor costs induced 

by the options would reduce businesses’ use of labor, 

which would make capital—such as buildings, machines, 

and technology—less productive than it otherwise would 

be. That reduction in capital productivity would, in 

turn, slightly reduce the rate at which income was saved 

and transformed into buildings, machines, and other 

capital goods. Over time, reductions in capital would 

15. Congressional Budget Office, The Budget and Economic Outlook: 

2019 to 2029 (January 2019), www.cbo.gov/publication/54918.

further reduce employment among workers at all wage 

levels. That effect on employment is already integrated 

into CBO’s estimates of employment elasticities, so this 

channel would have no additional effect on employment. 

It would, however, diminish overall business income and, 

by extension, the incomes of families with income from 

businesses. 

To estimate the magnitude of the effect through this 

channel, CBO used a general equilibrium model in 

which minimum-wage workers and other workers are 

imperfect substitutes for each other. CBO then examined 

how changes in labor income and profits stemming from 

an increase in the minimum wage affected the return to 

capital in that model. CBO estimated that the size of the 

effect of decreased business income would be roughly 

one-sixth that of each option’s net effect on real gross 

domestic product. Accordingly, effects of that size were 

incorporated into the options’ effects on family income.

Uncertainty About Macroeconomic Effects. As with 

other aspects of this analysis, there is considerable uncertainty about the precise size of the macroeconomic feedback effects. CBO developed a range of potential effects 

and identified the middle two-thirds of the distribution. 

To estimate the range of effects for the overall-demand 

channel, CBO formulated a range of possible outcomes 

for baseline overall demand in 2025 and then estimated 

how each of those possible outcomes would affect 

employment. The net effects through the channel were 

small but uniformly positive. CBO also estimated a 

range of employment effects for the capital-accumulation 

channel, but in all instances those effects were small. 

How CBO Estimated Total Effects on Employment

CBO used the four estimates described above—the 

number of affected workers in 2025, the responsiveness 

of employment to changes in the minimum wage, the 

change in 2025 wages likely to be induced by the new 

minimum, and the size of any macroeconomic feedback 

effects—to estimate the overall effect of each option on 

employment. 

The first step in that calculation for each option was to 

identify the set of workers directly affected by the option. 

The second step was to calculate the percentage change 

in each affected worker’s hourly wage that would be 

required to bring it up to the new minimum. The third 

step was to assign each affected worker a probability of 

not being employed by multiplying his or her percentage 
APPENDIX A THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 31

wage change by the relevant option’s employment 

elasticity. That probability varied considerably across 

workers (because their wage changes varied) and, to a 

lesser extent, across options. The total effect on employment for any option was obtained by summing those 

probabilities across all affected workers. (As a simplified 

example of such a calculation, suppose that there were 

100 affected workers, each of whom would see a 10 percent increase in wages, and that the employment elasticity was −0.50. In that case, CBO would estimate that 

there would be 5 workers—that is, 100 workers × 0.10 

× 0.50—who would be jobless as a result of the option.) 

Any changes in employment from the macroeconomic 

feedback effects were then added to that total.

CBO considered uncertainty about baseline wage growth 

and uncertainty about the elasticity of employment.16

The agency estimated a range of outcomes for each of 

those factors and then used those ranges to calculate an 

overall range of possible employment outcomes for each 

option. To estimate a range of wage growth projections, 

CBO examined how rates of wage growth have varied 

over historical five-year periods. To estimate a range 

of employment elasticities, the agency used the likely 

ranges for teenagers and adults for each option that are 

discussed above as a basis. CBO then took independent, 

random draws from two uniform distributions. The first 

determined the percentile used from the wage growth 

range. The second determined the percentile used from 

the elasticity ranges. The agency then calculated the 

change in employment each combination would entail, 

repeating that process 1,000 times. The range of possible effects reported covers the middle two-thirds of the 

distribution of employment changes resulting from those 

1,000 draws.

How CBO Estimated the Effects of the Options 

on Family Income

CBO analyzed the options’ effects on family income 

using many of the steps used in its employment analysis. However, assessing the effects on family income 

required data on the joint distribution of wages and 

annual family income, the latter of which are unavailable in the monthly CPS (the data used to analyze the 

options’ effects on employment). CBO therefore merged 

the effects on wages and employment estimated in 

16. CBO concluded that sampling variability in the CPS and the 

level of state minimum wages in 2025 were sources of uncertainty 

but did not consider those factors when creating its range of 

possible outcomes. 

the monthly CPS with information on family income 

and poverty from the March 2018 Annual Social and 

Economic Supplement (ASEC) of the CPS. The analysis 

proceeded in four steps: CBO first calculated hourly 

wages and family income in 2017, then used that distribution to project family income in 2025, then combined 

that with the estimates of the option’s wage rate and 

employment effects in 2025, and finally examined the 

effects of the options on people across that 2025 income 

distribution.

How CBO Estimated the Joint Distribution 

of Hourly Wages and Family Income in 2017

CBO used the ASEC to measure before-tax family cash 

income, which the Census Bureau uses to measure 

poverty. That measure of income includes labor earnings, 

capital and business income, and other private sources of 

income, as well as cash transfers from the government.17

It does not include noncash government transfers, such 

as benefits provided through the Supplemental Nutrition 

Assistance Program (SNAP), Medicaid, or Medicare, nor 

does it reflect the taxes people pay or the tax credits they 

receive, such as the earned income tax credit (EITC). 

Because the ASEC is a retrospective survey, the 2018 

survey contains information on earnings, employment, 

and family income in 2017.

CBO also used the ASEC to estimate hourly wages in 

2017. That analysis proceeded in several steps. First, 

hours worked per week were adjusted for measurement 

error as in CBO’s analysis of employment, meaning that 

very high and very low numbers of reported hours were 

adjusted toward the mean hours reported in the survey. 

Second, hours worked during the year were calculated 

as the product of weeks worked and (adjusted) hours 

worked per week. Third, workers’ hourly wages were calculated as their annual earnings divided by hours worked 

in 2017.18 Finally, CBO adjusted calculations of workers’ 

wages that were particularly low or high to correct for 

measurement error. 

17. Specifically, before-tax family cash income includes wage and 

salary earnings; pension or retirement income; income from 

self-employment, Temporary Assistance for Needy Families, 

Supplemental Security Income, Social Security, child support, 

unemployment compensation, workers’ compensation, disability 

benefits, educational assistance, and financial assistance from 

outside the household; and other cash income.

18. CBO included observations for which the Census Bureau 

imputed annual earnings, the number of hours worked per week, 

or the number of weeks worked per year.
32 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

How CBO Projected the Joint Distribution 

of Hourly Wages and Family Income in 2025

CBO then adjusted the 2017 ASEC data to make it 

appropriate for an analysis of 2025 outcomes. First, 

CBO adjusted the sample to reflect the agency’s forecast 

of population growth between 2017 and 2025, both as 

a whole and separately for groups defined by sex, age, 

education, race and ethnicity, and employment status. 

Second, CBO projected growth in the poverty threshold 

and in each of about 20 types of income. CBO projected 

earnings growth to be somewhat higher for the top 

10 percent of earners than for the bottom 90 percent.

CBO then projected the joint distribution of hourly 

wages and family income in 2025 by grafting its estimates of the options’ effects on wage rates and employment in 2025, which are discussed above, to its projections of income in 2025. 

How CBO Estimated the Effects of Increases 

in the Minimum Wage on Family Income

The steps above produced a distribution of employment, 

earnings, and family income in 2025 under current law. 

CBO used that distribution and the estimated effects on 

employment and earnings described above to simulate 

the effect of a higher minimum wage on annual earnings, 

family income, and the number of people in poverty.

Changes in Workers’ Annual Earnings. CBO considered 

a range of approaches to projecting earnings changes in 

the ASEC data. The most direct approach would be to 

calculate employment and earnings effects directly from 

the ASEC data, using the elasticities and methods the 

agency used in its employment analysis. However, the distribution of hourly wages in the ASEC is quite different 

from that in the monthly CPS, even after corrections for 

measurement error. That is in part because the ASEC is 

a retrospective survey about activity over the entire prior 

year, and respondents’ reports of their labor market activity over that lengthy period are less accurate. Moreover, 

all wages in the ASEC data must be calculated—that is, 

hourly wages are calculated as annual earnings divided 

by annual hours worked—and calculated wages are less 

accurate than respondents’ reported hourly wages in the 

monthly CPS. Whatever the cause of the differences 

between the distributions, applying the same methods 

to each would yield quite different employment effects. 

Because CBO views the monthly CPS as more reliable 

for projecting changes in employment and earnings, the 

agency relied on an alternative approach.

That approach was to take employment and earnings 

effects as estimated in the monthly CPS and graft them 

onto the ASEC data. In particular, CBO first divided 

workers in both the monthly CPS and the ASEC into 

groups based on wage percentiles. CBO then added each 

option’s average effects on wages (including ripple effects 

for workers with wages near the new minimum) and 

employment for each wage percentile in the monthly 

CPS to the workers in the corresponding ASEC percentile. CBO matched percentiles of wages in the base 

year of both analyses—that is, 2018 wage percentiles in 

the employment analysis were matched to 2017 wage 

percentiles in the ASEC. 

In the employment analysis, CBO also calculated ripple 

effects for workers with wages near the new minimum 

for use in the family income analysis. To estimate those 

ripple effects, CBO first calculated 50 percent of the 

change in each worker’s applicable minimum—that is, 

the maximum of his or her federal, state, or local minimum wage. CBO then applied ripple effects to all workers whose wages were within a range of the new minimum plus or minus that amount. For workers whose 

baseline applicable minimum wage was $7.25, that 

amount would be 50 percent of $15.00 minus $7.25, or 

about $3.90; for workers whose baseline applicable minimum was $14.50, the amount would be $0.25. Ripple 

effects were applied to workers with wages between 

$11.10 and $18.90 in the first case and between $14.75 

and $15.25 in the second case. Those ripple effects were 

presumed to start at zero, rise linearly to a peak at the 

new minimum, and then phase out as baseline wages 

reached the upper bound. The ripple effects were then 

added to any wage increase necessary to bring a worker’s 

wages into compliance with the new higher minimum. 

Consistent with the analysis discussed above, those ripple 

effects did not change employment.

The average effects on employment and earnings for each 

wage percentile in the monthly CPS were then attached 

to workers in the same percentile in the ASEC. That is, 

the averages for the first percentile of the monthly CPS 

were assigned to each worker in the first percentile of the 

ASEC, and so forth. Finally, the averages in the ASEC 

were adjusted to account for differences in the number of 

hours worked in the two sources. At the end of this process, each worker in the ASEC was assigned an earnings 

increase (conditional on being employed) and a probability of being jobless that matched the analogous outcomes 

for workers in the same percentile of the monthly CPS.
APPENDIX A THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 33

CBO considered a range of methods for distributing 

weeks without a job across workers over the year. At 

one extreme, a relatively small group of workers might 

be jobless week after week and never benefit from 

higher wages. At the other extreme, a large group of 

workers might shuffle regularly in and out of employment, experiencing joblessness for short spells and also 

receiving higher wages during the weeks when they 

were employed. Rather than going to either extreme, 

CBO used its estimates of the distribution of durations 

of unemployment in 2018, obtained from the monthly 

CPS, to assign directly affected workers either no joblessness or a duration of joblessness that was randomly 

chosen from the 2018 distribution. Thus, some workers 

in CBO’s model were out of work for nearly the entire 

year, whereas others were jobless for shorter—sometimes 

much shorter—periods of time.

Other Changes in Families’ Annual Income. Earnings 

are not the only channel through which the options 

would affect family income. A higher minimum wage 

would also reduce income for business owners through 

reduced profits, reduce real income for everyone through 

higher prices, and alter some people’s income through 

macroeconomic feedback effects.

Business owners’ income would decline under all of the 

options—by $64 billion in 2025 under the $15 option, 

for example—because they would have to pay higher 

wages to the workers they retained. Research suggests, 

however, that business owners would be able to pass a 

substantial and, over time, increasing share of those cost 

increases on to consumers in the form of higher prices. 

In CBO’s assessment, business owners would absorb 

50 percent of the increase in labor costs in 2020, the 

year the higher minimum wages first took effect. The 

share absorbed by business owners would then fall by 

5 percentage points each subsequent year, dropping to 

25 percent by 2025. For the $15 option, that would 

translate to a loss of $16 billion (25 percent of $64 billion) among business owners in 2025. CBO allocated 

that income loss to households in proportion to their 

share of total business income (including dividends and 

interest income) reported in the ASEC. 

Real income would fall slightly for all households 

precisely because employers would pass some of their 

higher costs on to consumers through higher prices. In 

CBO’s analysis, the share of the cost increases absorbed 

by consumers would rise over time, starting at 50 percent 

in 2020 and increasing to 75 percent by 2025. Thus, 

by 2025 under the $15 option, the real income of all 

households would decrease by $48 billion (75 percent 

of $64 billion). CBO allocated that income reduction to 

households in proportion to their share of total income 

reported in the ASEC.

Those effects on the real income of business owners and 

consumers would be partially offset if a higher minimum 

wage improved workers’ productivity. On the basis of 

its review of the limited literature on this topic, CBO 

projected that under each of the options, the productivity of retained low-wage workers would increase by 20 

percent of the percentage increase in their earnings. So, 

for example, if an option increased a retained worker’s 

hourly earnings by $1.00, then CBO concluded that the 

worker’s hourly productivity would increase by $0.20. 

That productivity increase would offset 20 percent of the 

cost of the minimum-wage increase for employers, which 

would in turn reduce the effects of the minimum-wage 

increase on business income and prices.

Such productivity effects might occur through a variety of channels. High rates of worker turnover are a 

common feature of low-wage employers, whose entire 

workforce may turn over more than once a year. A higher 

minimum wage typically reduces employee turnover, 

largely because employees now view minimum-wage 

jobs as being more lucrative and less easy to replace. That 

reduced turnover lowers employers’ costs of recruiting 

and training employees. Workers may also work harder 

or more efficiently when they have a higher-paying job, 

again in part because they view the job as more valuable 

and are therefore more inclined to keep it. 

There are, however, reasons to believe that wage compression induced by a minimum wage increase could reduce

productivity. Whereas under current law there would be 

a range of wages paid between $7.25 and $15, the $15 

option would—absent ripple effects—equate the wages 

of all workers who would otherwise earn between $7.25 

and $15. Ripple effects would add back a small fraction 

of the earlier variation, but the net effect would still be to 

greatly compress wages among low-wage workers. That 

compression could adversely affect productivity in two 

ways. First, workers whose wages under current law were 

close to the new minimum might resent the equalization 

of their wages with those of workers who previously 

made much less, and they might be less productive as 

a result. Second, wage compression reduces workers’ 
34 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

incentives to improve their skills and performance 

because it makes the wage benefits of those improvements smaller. 

Because they would transfer income toward families 

with lower incomes, the options would increase overall 

demand and family income in the first few years after 

they were initially implemented, as described above. By 

2025, however, CBO expects that the options’ effects on 

family income through that channel would be eliminated, in part because the central bank would respond 

by boosting short-term interest rates. The options would 

also slightly reduce capital income, which would ultimately reduce the amount of capital deployed in the 

economy. Those effects are additive to the more direct 

effects on income discussed above and, in CBO’s analysis, are distributed across families in proportion to each 

family’s share of business income.

Changes in the Number of People in Poverty. CBO 

used its estimates of the change in income to project how 

many families would move into and out of poverty. The 

Census Bureau’s poverty thresholds identify the income 

level below which families are classified as being in 

poverty, and the Census Bureau updates those thresholds 

annually for inflation in the consumer price index for 

urban consumers, or CPI-U. CBO projected that those 

thresholds would grow at the rate it forecasts for the 

CPI-U. Following the Census Bureau’s official definition 

of poverty, CBO did not consider the effects of a minimum-wage increase on taxes, tax credits, or noncash 

transfer payments, even though some of those effects 

would partly offset the gain to families from a higher 

minimum wage. For example, workers whose wages 

increased would pay more payroll taxes (though they 

would later be eligible for more Social Security benefits), 

and some of their families would be eligible for less in 

noncash benefits, such as those provided by SNAP. The 

amount of the EITC received by workers in poor families would increase in some cases and decrease in others, 

depending on each worker’s earnings and family income.

Uncertainty About the Estimates. There is considerable 

uncertainty about the effects of minimum-wage increases 

on family income. Some of the sources of uncertainty 

involve wage growth and the elasticity of employment—

the same factors that drive uncertainty about the effects 

on employment. Yet there are additional sources of 

uncertainty about the options’ effects on family income:

• The shares of labor costs that are passed on to consumers 

(in the form of higher prices) rather than absorbed by 

business owners (in the form of lower profits),

• The effect of higher wages on the productivity of 

retained workers, and 

• The effect of a higher minimum wage on other people 

in low-wage workers’ families. Some people might 

work fewer hours if a family member’s earnings 

rose or more hours if that family member became 

jobless. Such responses would partially offset some 

of the options’ effects on family income but are not 

incorporated into CBO’s analysis.

How CBO’s Approach Compares 

With Other Approaches

CBO projected the distribution of family income in 2025 

and then estimated how a higher minimum wage would 

alter that distribution. CBO then estimated each option’s 

effect on poverty by comparing families’ poverty status 

under current law with their status under each option.19

An alternative approach is to estimate the historical 

correlation between the poverty rate and the minimum 

wage and to use that correlation to project a change in 

the poverty rate for a given change in the minimum 

wage. Some of the estimates produced by studies taking that approach imply that the $15 option would 

reduce poverty by more than CBO has estimated. (See 

Appendix B for examples of such studies.)

The two approaches may yield different results for several 

reasons. CBO might, for example, underestimate the 

minimum wage’s effect on poor families’ income, perhaps because the earnings of potentially affected workers 

would rise more than CBO expects. The minimum wage 

might also alter family structure—through increased 

marriage rates, for example—in ways that reduce the 

number of families in poverty. Such effects would be 

captured in the historical correlation approach but not in 

CBO’s method. Alternatively, the effect on the number 

of people in poverty of a minimum-wage increase might 

change over time—for example, if the number of lowwage workers in families with income near the poverty 

19. CBO’s analysis of income focuses on family income, in part 

because that is how official poverty measures are determined. 

Some analysts, however, have focused on household income. 

CBO expects that using that alternative income measure would 

yield qualitatively similar results.
APPENDIX A THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 35

threshold varied from year to year. In that case, the correlation analysis might be less informative than CBO’s 

simulation method. The correlation analysis might also 

be misleading if changes in the minimum wage tend to 

coincide with other events that affect poverty.

How CBO’s Approach Differed From Its 2014 

Analysis

In 2014, CBO analyzed other proposed changes to the 

federal minimum wage. CBO’s current analysis addresses 

most of the same questions and follows, in general, most 

of the analytical steps the agency took in that earlier 

analysis. There are, however, some important differences. 

Group-Specific Wage Forecasts

In its 2014 analysis, CBO projected changes in hourly 

wages under then-current law using its overall forecast 

for the growth rate of earnings and wages in the economy. In this analysis, CBO used recent historical data 

to project rates of wage growth separately for groups 

defined by sex, age, and education. Doing so had the 

effect of assigning less wage growth to workers near the 

bottom of the wage distribution. That, in turn, had the 

effect of increasing the number of workers projected to 

be affected by a higher minimum wage in future years.

Teen Employment Elasticities

The median estimates of the elasticities measuring the 

responsiveness of employment of all teenagers to a 

change in the minimum wage (those typically estimated 

in the literature) in the 2014 report were −0.10 for a 

$10.10 option and −0.075 for a $9 option, whereas 

the median estimates in the current report are −0.128, 

−0.111, and −0.100 for the $15, $12, and $10 options, 

respectively. The changes to the estimates were based 

partly on CBO’s continued review of the literature, 

including work published since 2014, but mostly on 

changes in the characteristics of the options analyzed 

and the way in which the elasticities depend on those 

characteristics. The elasticity for a given option depends 

on the number of workers affected, the percentage 

increase in wages for affected workers required to bring 

employers into compliance, the time elapsed since the 

law was initially implemented, and whether or not the 

new minimum wage is indexed for wage growth. None 

of the options in either report are precisely the same on 

all of those dimensions, so the elasticities for each option 

vary accordingly.

Adult Employment Elasticities

In its 2014 analysis, CBO concluded that the elasticity 

for directly affected adult workers was one-third the size 

of the corresponding elasticity for teenagers. The agency’s approach in 2014 was driven by the fact that there 

was little available research on elasticities for adults at 

the time. Research published since 2014 has provided 

additional evidence, however, which CBO incorporated 

into its current analysis. Those studies have typically 

attempted to identify adults (and teenagers) directly 

affected by minimum-wage changes by examining 

their wages before the changes occurred. Although the 

findings of those studies have varied substantially, most 

have indicated that the responsiveness of employment 

is more similar for teenagers and adults than CBO had 

previously expected. The median employment elasticities 

for directly affected adult workers (that is, the elasticity 

measuring the employment response of directly affected 

adult workers to the change in their own wage) used in 

the current report are −0.27 (for the $15 option), −0.23 

(for the $12 option), and −0.21 (for the $10 option), 

each higher than those used in the earlier report: −0.15 

(for the $10.10 option) and −0.11 (for the $9 option). 

In the 2014 report, the likely ranges for those elasticities 

were symmetric; in this report, they are not.

To further explain how CBO arrived at those different 

elasticities, consider the $10.10 option in the 2014 

report and the $15 option in the current report. To 

get to the −0.15 elasticity for directly affected adults in 

2014, CBO took its estimate of the responsiveness of the 

employment of all teens to a change in the minimum 

wage of −0.10, converted it to an elasticity measuring the 

employment response of directly affected teenagers to a 

change in their own wage of −0.45, and then multiplied 

that by 33 percent, its assessment of the ratio of adult to 

teen elasticities. By contrast, CBO developed its current 

estimate of the elasticity for directly affected adults with 

respect to a change in their own wage from its review 

of recent research, so its estimated elasticity of −0.27 

was not the result of a corresponding conversion of a 

teen elasticity. CBO’s adult elasticity of −0.27 is about 

one-third of its corresponding teen elasticity under the 

$15 option, as it was in 2014. Because adults account 

for roughly two-thirds of directly affected workers, that 

higher adult elasticity has a large impact on CBO’s estimates of the options’ effects on employment and family 

income.
36 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

Conversion Factors for Modifying Teen Elasticities

Most elasticities in the research literature relate percentage changes in the employment of all teen workers to 

percentage changes in the minimum wage. CBO deemed 

it more suitable to use elasticities that relate percentage 

changes in the employment of all directly affected teen 

workers to the percentage change in their wages induced 

by a minimum-wage increase. Because many teenagers 

would not be directly affected, and because wages for 

directly affected workers would change by less than the 

minimum wage itself, deriving those elasticities entails 

multiplying the elasticities from the research literature by 

a conversion factor. That conversion factor is the product 

of the inverse of the share of teenage workers who would 

be directly affected and the ratio of the change in the 

minimum wage to the change in wages induced by the 

minimum-wage increase.

Changes in both components drove CBO to use a 

different conversion factor in the current analysis than 

it used in 2014. In particular, CBO now estimates that, 

on average, historical minimum-wage changes have 

directly affected about a quarter of employed teenagers. Therefore, the first adjustment factor is about 4, 

whereas CBO’s 2014 estimate of that factor was 3. And 

CBO now estimates that, on average, historical minimum-wage changes have been about 60 percent larger 

than the percentage changes in the wages of directly 

affected workers. Therefore, the second adjustment factor 

is now about 1.7, whereas CBO’s 2014 estimate was 1.5. 

The net effect of these changes is to move the conversion 

factor from 4.5 in the 2014 analysis to 6.5 in this one. 

Macroeconomic Effects

Estimates of macroeconomic effects are different than 

those in CBO’s 2014 report for two reasons. First, CBO 

projects that the economy will be close to its maximum 

sustainable output in 2025, which would limit how 

much employment could be affected by changes in 

overall demand. Second, because the options examined 

here would take longer to go into effect than those in the 

2014 report, the short-term effects of any boost to aggregate demand would have more time to dissipate. In the 

2014 report, CBO estimated small increases in employment and income stemming from macroeconomic 

factors; in this report, those effects are negligible.

Projecting Changes in Wages and Employment 

in the Family Income Analysis

In its 2014 analysis, CBO used the ASEC data to calculate average hourly wages for all people who reported 

any earnings in the previous year. A challenge to that 

analysis was that the distributions of hourly wages in the 

monthly CPS and in the ASEC are quite different. Those 

differences arise in part because the ASEC does not 

record hourly wages directly and because, without some 

adjustment, the ASEC has a larger proportion of partyear workers than does the monthly CPS. Recognizing 

those differences, CBO adjusted the survey weights in 

the ASEC sample in its 2014 analysis to ensure that the 

reweighted number of affected workers in the ASEC was 

equal to the number of affected workers estimated from 

the monthly CPS. CBO then used the hourly wages 

in that reweighted ASEC sample to estimate the 2014 

options’ effects on earnings and employment. 

In reviewing its methods for the current analysis, CBO 

concluded that, even with reweighting and other adjustments, there were still important differences between 

the hourly wage distributions in the ASEC and in the 

monthly CPS. CBO therefore estimated the earnings 

and employment effects separately for each percentile of 

the monthly CPS sample and then assigned those effects 

to the corresponding percentile of the ASEC wage distribution, taking care that the total earnings change in the 

ASEC summed to the total calculated from the monthly 

CPS. The earnings effects were distributed proportionally 

to each person within a percentile. The change in methods had no effect on CBO’s analysis of employment, but 

in CBO’s analysis of income, it modestly reduced the 

estimated effects on the number of people in poverty.

CBO also changed the way it apportioned durations 

of unemployment induced by the higher minimum 

wage. In its 2014 analysis, CBO estimated the effects of 

employment loss on low-wage workers by distributing 

the reduction in employment so that affected people 

worked, on average, about half as many weeks as they 

otherwise would have. CBO therefore lowered projected 

earnings by 50 percent for twice the number of people 

who would become jobless (rather than lowering earnings by 100 percent for precisely the number of people 

who would become jobless). The particular workers who 

experienced that half year of joblessness were randomly 

chosen from among the population of affected workers, with workers whose mandated wage increases were 

higher having a higher probability of selection. In the 
APPENDIX A THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 37

present analysis, CBO randomly assigned jobless spells to 

affected workers so that the number of people who were 

jobless in any given week was equal to the number estimated in CBO’s analysis of employment. However, those 

unemployment spells were themselves randomly chosen 

from the distribution of durations of unemployment 

that CBO estimated from the CPS. Some were longer 

than 26 weeks, but many were shorter. Spells lasting for 

17 weeks or less account for about half of the projected 

unemployment among workers who are younger than 25 

and did not complete high school.

APPENDIX

B

Research About the Effects of 

Minimum-Wage Increases

To develop its estimates of the effect of minimum-wage 

increases on employment and family income, the 

Congressional Budget Office drew on the following 

research.

Review Articles on Employment Effects

CBO examined the following review articles that synthesize information from many studies of the effects of the 

minimum wage on employment.

Analyses of Published Estimates of Employment 

Effects That Account for Journals’ Tendency to 

Publish Studies Showing Significant Effects

Isaiah Andrews and Maximilian Kasy, Identification 

of and Correction for Publication Bias, Working Paper 

23298 (National Bureau of Economic Research, 

March 2017), www.nber.org/papers/w23298.

1

Paul Wolfson and Dale Belman, “15 Years of Research on 

U.S. Employment and the Minimum Wage,” Working 

Paper 2705499 (Tuck School of Business, December 

2016), http://dx.doi.org/10.2139/ssrn.2705499.

2

Georgios Giotis and Michael Chletsos, “Is There 

Publication Selection Bias in Minimum Wage Research 

During the Five-Year Period From 2010 to 2014?” 

Discussion Paper 2015-58 (Economics, August 2015), 

https://tinyurl.com/y4kkv9z3.

Dale Belman and Paul Wolfson, “Does Employment 

Respond to the Minimum Wage? A Meta-analysis of 

Recent Studies From the New Minimum Wage Research,” 

in What Does the Minimum Wage Do? (Upjohn Institute, 

2014), https://research.upjohn.org/up_press/227/.

1. For a newer version, see Isaiah Andrews and Maximilian Kasy, 

“Identification of and Correction for Publication Bias,” American 

Economic Review (forthcoming), https://tinyurl.com/y6jbofxu.

2. For a newer version, see Paul Wolfson and Dale Belman, “15 

Years of Research on U.S. Employment and the Minimum 

Wage,” Labour (forthcoming).

Hristos Doucouliagos and T.D. Stanley, “Publication 

Selection Bias in Minimum-Wage Research? A MetaRegression Analysis,” British Journal of Industrial 

Relations, vol. 47, no. 2 (June 2009), pp. 406–428, 

https://tinyurl.com/y6ks3gck.

David Card and Alan B. Krueger, “Time-Series 

Minimum-Wage Studies: A Meta-analysis,” American 

Economic Review, vol. 85, no. 2 (May 1995), pp. 238–

243, www.jstor.org/stable/2117925.

Reviews of Methods and Data Used to 

Estimate Effects on Employment

Sylvia Allegretto and others, “Credible Research Designs 

for Minimum Wage Studies: A Response to Neumark, 

Salas, and Wascher,” Industry and Labor Relations Review, 

vol. 70, no. 3 (May 2017), pp. 559–592, https://doi.org/

10.1177/0019793917692788.

Alan Manning, “The Elusive Employment Effect of the 

Minimum Wage,” Discussion Paper 1428 (Center for 

Economic Performance, May 2016), http://eprints.lse.ac.uk/

67646/1/dp1428.pdf (PDF, 270 KB).

David Neumark and William L. Wascher, “The Effects of 

Minimum Wages on Employment,” Federal Reserve Bank 

of San Francisco Economic Letter, 2015-37 (December 21, 

2015), https://tinyurl.com/y2mwxya6.

Reviews of Minimum-Wage Effects in Other Countries

Low Pay Commission, National Minimum Wage: 

Low Pay Commission Report 2017 (November 2017), 

Chapter 2, pp. 45–101, https://tinyurl.com/y6xc4h4u.

Appendix B
40 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

David Neumark and William L. Wascher, Minimum 

Wages (MIT Press, 2008), http://mitpress.mit.edu/books/

minimum-wages.

3

Early Reviews of the Research Literature

Charles Brown, “Minimum Wages, Employment, and 

the Distribution of Income,” in Orley C. Ashenfelter and 

David Card, eds., Handbook of Labor Economics, vol. 3, 

part B (Elsevier, 1999), pp. 2101–2163, http://tinyurl.com/

mmkdrme.

Organisation for Economic Co-operation and 

Development, “Making the Most of the Minimum: 

Statutory Minimum Wages, Employment and Poverty,” 

in OECD Employment Outlook 1998—Towards an 

Employment-Centred Social Policy (OECD Directorate 

for Labour and Social Affairs, June 1998), Chapter 2, 

pp. 31–79, http://tinyurl.com/q6rs9a2.

David Card and Alan B. Krueger, Myth and 

Measurement: The New Economics of the Minimum Wage

(Princeton University Press, 1995), http://press.princeton.edu/

titles/5632.html.

Charles Brown, Curtis Gilroy, and Andrew Kohen, 

“The Effect of the Minimum Wage on Employment 

and Unemployment,” Journal of Economic Literature, 

vol. 20, no. 2 (June 1982), pp. 487–528, www.jstor.org/

stable/2724487.

Original Research About 

Effects on Employment

CBO also considered the following original studies that 

are generally too recent to have been covered by the 

reviews listed above.

Studies Focused on Employment Among Teenagers

David Powell, Synthetic Control Estimation Beyond Case 

Studies: Does the Minimum Wage Reduce Employment?

Working Paper WR-1142 (RAND Corporation, 

July 2017), www.rand.org/pubs/working_papers/

WR1142.html.

3. For reviews, see Arindrajit Dube, “Minimum Wages. By 

David Neumark and William L. Wascher,” Journal of Economic 

Literature, vol. 49, no. 3 (September 2011), pp. 719–779, http://

dx.doi.org/10.1257/jel.49.3.719.r18; and Richard V. Burkhauser, 

“Minimum Wages. By David Neumark and William L. Wascher,” 

Industrial and Labor Relations Review, vol. 64, no. 1 (September 

2010), pp. 202–203, http://tinyurl.com/o3gy5bg.

Evan Totty, “The Effect of Minimum Wages on 

Employment: A Factor Model Approach,” Economic 

Inquiry, vol. 55, no. 4 (October 2017), pp. 1712–1737, 

https://doi.org/10.1111/ecin.12472.

Arindrajit Dube, T. William Lester, and Michael Reich, 

“Minimum Wage Shocks, Employment Flows, and 

Labor Market Frictions,” Journal of Labor Economics, 

vol. 34, no. 3 (July 2016), pp. 663–704, https://doi.org/

10.1086/685449.

Saul D. Hoffman, “Employment Effects of the 2009 

Minimum Wage Increase: New Evidence From StateBased Comparisons of Workers by Skill Level,” Berkeley 

Electronic Journal of Economic Analysis and Policy, vol. 14, 

no. 3 (July 2014), pp. 695–721, http://dx.doi.org/

10.1515/bejeap-2012-0004.

Laura Giuliano, “Minimum Wage Effects on 

Employment, Substitution, and the Teenage Labor 

Supply: Evidence From Personnel Data,” Journal of Labor 

Economics, vol. 31, no. 1 (January 2013), pp. 155–194, 

http://dx.doi.org/10.1086/666921.

Sylvia A. Allegretto, Arindrajit Dube, and Michael 

Reich, “Do Minimum Wages Really Reduce Teen 

Employment? Accounting for Heterogeneity and 

Selectivity in State Panel Data,” Industrial Relations, 

vol. 50, no. 2 (April 2011), pp. 205–240, http://dx.doi.org/

10.1111/j.1468-232X.2011.00634.x.

Studies on the Influence of 

Different Economic Conditions

Joseph J. Sabia, “The Effect of Minimum Wages Over 

the Business Cycle,” Journal of Labor Research, vol. 35, 

no. 3 (September 2014), pp. 227–245, https://doi.org/

10.1007/s12122-014-9180-x.

John T. Addison, McKinley L. Blackburn, and Chad 

D. Cotti, “Minimum Wage Increases in a Recessionary 

Environment,” Labour Economics, vol. 23 (August 2013), 

pp. 30–39, http://dx.doi.org/10.1016/

j.labeco.2013.02.004.
APPENDIX B THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 41

Studies Focused on Industries in Which 

Low Wages Are Prevalent

Jeffrey Clemens and Michael R. Strain, “The Short-Run 

Employment Effects of Recent Minimum Changes: 

Evidence From the American Community Survey,” 

Contemporary Economic Policy, vol. 36, no. 4 (February 

2018), pp. 711–722, https://tinyurl.com/yxe4s5z4.

Jonathan Meer and Jeremy West, “Effects of the 

Minimum Wage on Employment Dynamics,” Journal 

of Human Resources, vol. 51, no. 2 (November 2016), 

pp. 500–522, https://tinyurl.com/yy64qdad.

David Neumark, J. M. Ian Salas, and William Wascher, 

“Revisiting the Minimum Wage Employment Debate: 

Throwing Out the Baby With the Bathwater,” Industrial 

and Labor Relations Review, vol. 67, no. 3 (Spring 2014), 

pp. 608–648, www.jstor.org/stable/pdf/24369649.pdf 

(PDF, 2.1 MB).

William E. Even and David A. Macpherson, “The Effect 

of the Tipped Minimum Wage on Employees in the U.S. 

Restaurant Industry,” Southern Economic Journal, vol. 80, 

no. 3 (January 2014), pp. 633–655, https://www.jstor.org/

stable/23809644.

Arindrajit Dube, “Minimum Wages and Aggregate Job 

Growth: Causal Effect or Statistical Artifact?” Discussion 

Paper 7674 (Institute for the Study of Labor, October 

2013), http://tinyurl.com/kx6t2yz.

John T. Addison, McKinley L. Blackburn, and Chad 

D. Cotti, “The Effect of Minimum Wages on Labour 

Market Outcomes: County-Level Estimates From the 

Restaurant-and-Bar Sector,” British Journal of Industrial 

Relations, vol. 50, no. 3 (September 2012), pp. 412–435, 

http://tinyurl.com/ot9apya.

Arindrajit Dube, T. William Lester, and Michael Reich, 

“Minimum Wage Effects Across State Borders: Estimates 

Using Contiguous Counties,” Review of Economics and 

Statistics, vol. 92, no. 4 (November 2010), pp. 945–964, 

http://dx.doi.org/10.1162/rest_a_00039.

Recent Studies of Locality-Specific Minimum Wages

Ekaterina Jardim and others, Minimum Wage Increases, 

Wages, and Low-Wage Employment: Evidence From Seattle, 

Working Paper 23532 (National Bureau of Economic 

Research, May 2018), www.nber.org/papers/w23532.

Sylvia Allegretto and others, “The New Wave of 

Local Minimum Wage Policies: Evidence From Six 

Cities,” Center on Wage and Employment Dynamics 

(September 6, 2018), https://tinyurl.com/yy5rh6rm.

Studies Focused on Groups That 

Tend to Earn Low Wages

Arindrajit Dube, T. William Lester, and Michael Reich, 

“Minimum Wage Shocks, Employment Flows, and 

Labor Market Frictions,” Journal of Labor Economics, 

vol. 34, no. 3 (July 2016), pp. 663–704, https://doi.org/

10.1086/685449.

Joseph J. Sabia, Richard V. Burkhauser, and Benjamin 

Hansen, “Are the Effects of Minimum Wage Increases 

Always Small? New Evidence From a Case Study of 

New York State,” Industrial and Labor Relations Review, 

vol. 65, no. 2 (April 2012), pp. 350–376, http://tinyurl.com/

mn566b3.

David Neumark, “The Employment Effects of Minimum 

Wages: Evidence From a Prespecified Research Design,” 

Industrial Relations, vol. 40, no. 1 (January 2001), 

pp. 121–144, http://dx.doi.org/

10.1111/0019-8676.00199.

Richard V. Burkhauser, Kenneth A. Couch, and David 

C. Wittenburg, “Who Minimum Wage Increases Bite: 

An Analysis Using Monthly Data From the SIPP and 

the CPS,” Southern Economic Journal, vol. 67, no. 1 

(July 2000), pp. 16–40, www.jstor.org/stable/1061611.

Studies Focused on Most Affected Workers

Joan Monras, “Minimum Wages and Spatial 

Equilibrium: Theory and Evidence,” Journal of Labor 

Economics, vol. 37, no. 3 (July 2019), pp. 853–904, 

https://doi.org/10.1086/702650.

Doruk Cengiz, “Seeing Beyond the Trees: Using 

Machine Learning to Estimate the Impact of Minimum 

Wages on Affected Individuals” (draft, University of 

Massachusetts, Amherst, January 2019), https://tinyurl.com/

y2tpsouv (PDF, 6.4 MB).
42 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

Doruk Cengiz and others, The Effect of Minimum Wages 

on Low-Wage Jobs: Evidence From the United States Using 

a Bunching Estimator, Working Paper 25434 (National 

Bureau of Economic Research, January 2019), 

www.nber.org/papers/w25434.

4

Martha J. Bailey, John DiNardo, and Bryan A. Stuart, 

“The Economic Impact of a High National Minimum 

Wage: Evidence From the 1966 Fair Labor Standards 

Act” (draft, Michigan University, December 2018), 

https://tinyurl.com/y6kkujz8 (PDF, 1.8 MB).

Ellora Derenoncourt and Claire Montialoux, “Minimum 

Wages and Racial Inequality” (draft, Harvard University, 

November 2018), https://tinyurl.com/y5hnwp3w.

Ekaterina Jardim and others, Minimum Wage Increases 

and Individual Employment Trajectories, Working Paper 

25182 (National Bureau of Economic Research, October 

2018), www.nber.org/papers/w25182.

Radhakrishnan Gopalan and others, “State Minimum 

Wage Changes and Employment: Evidence From One 

Million Hourly Wage Workers” (draft, Washington 

University in St. Louis, August 2018), https://tinyurl.com/

yyhjsnrm.

Ekaterina Jardim and others, Minimum Wage Increases, 

Wages, and Low-Wage Employment: Evidence From Seattle, 

Working Paper 23532 (National Bureau of Economic 

Research, May 2018), www.nber.org/papers/w23532.

Daniel Aaronson and others, “Industry Dynamics 

and the Minimum Wage: A Putty-Clay Approach,” 

International Economic Review, vol. 59, no. 1 (February 

2018), pp. 51–84, https://doi.org/10.1111/iere.12262.

Jeffrey Clemens and Michael Wither, The Minimum 

Wage and the Great Recession: Evidence of Effects on 

the Employment and Income Trajectories of Low-Skilled 

Workers, Working Paper 20724 (National Bureau of 

Economic Research, September 2016), www.nber.org/

papers/w20724.

5

4. For a newer version, see Doruk Cengiz and others, “T﻿he Effect 

of Minimum Wages on Low-Wage Jobs,” Quarterly Journal of 

Economics (forthcoming), https://doi.org/10.1093/qje/qjz014.

5. For a newer version, see Jeffrey Clemens and Michael Wither, 

“The Minimum Wage and the Great Recession: Evidence of 

Effects on the Employment and Income Trajectories of LowSkilled Workers,” Journal of Public Economics, vol. 170, no. 1 

(February 2019), pp. 53–67, https://doi.org/10.1016/

j.jpubeco.2019.01.004.

Jonathan Meer and Jeremy West, “Effects of the 

Minimum Wage on Employment Dynamics,” Journal 

of Human Resources, vol. 51, no. 2 (November 2015), 

pp. 500–522, https://tinyurl.com/yy64qdad.

David Neumark, Mark Schweitzer, and William 

Wascher, “Minimum Wage Effects Throughout the 

Wage Distribution,” Journal of Human Resources, vol. 39, 

no. 2 (Spring 2004), pp. 425–450, http://tinyurl.com/

ncgswlg.

Research on Long-Term Effects

Joan Monras, “Minimum Wages and Spatial 

Equilibrium: Theory and Evidence,” Journal of Labor 

Economics, vol. 37, no. 3 (July 2019), pp. 853–904, 

https://doi.org/10.1086/702650.

Doruk Cengiz, “Seeing Beyond the Trees: Using 

Machine Learning to Estimate the Impact of Minimum 

Wages on Affected Individuals” (draft, University of 

Massachusetts, Amherst, January 2019), https://tinyurl.com/

y2tpsouv (PDF, 6.4 MB).

Doruk Cengiz and others, The Effect of Minimum Wages 

on Low-Wage Jobs: Evidence From the United States 

Using a Bunching Estimator, Working Paper 25434 

(National Bureau of Economic Research, January 2019), 

www.nber.org/papers/w25434.

Martha J. Bailey, John DiNardo, and Bryan A. Stuart, 

“The Economic Impact of a High National Minimum 

Wage: Evidence From the 1966 Fair Labor Standards 

Act” (draft, Michigan University, December 2018), 

https://tinyurl.com/y6kkujz8 (PDF, 1.8 MB).

Ellora Derenoncourt and Claire Montialoux, “Minimum 

Wages and Racial Inequality” (draft, Harvard University, 

November 2018), https://tinyurl.com/y5hnwp3w.

Daniel Aaronson and others, “Industry Dynamics 

and the Minimum Wage: A Putty-Clay Approach,” 

International Economic Review, vol. 59, no. 1 (February 

2018), pp. 51–84, https://doi.org/10.1111/iere.12262.

Jonathan Meer and Jeremy West, “Effects of the 

Minimum Wage on Employment Dynamics,” Journal 

of Human Resources, vol. 51, no. 2 (November 2015), 

pp. 500–522, https://tinyurl.com/yy64qdad.
APPENDIX B THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 43

Isaac Sorkin, “Are There Long-Run Effects of the 

Minimum Wage?” Review of Economic Dynamics, 

vol. 187, no. 2 (April 2015), pp. 306–333, https://doi.org/

10.1016/j.red.2014.05.003.

Dale L. Belman and Paul Wolfson, “The Effect of 

Legislated Minimum Wage Increases on Employment 

and Hours: A Dynamic Analysis,” Labour, vol. 24, no. 1 

(March 2010), pp. 1–25, https://doi.org/10.1111/

j.1467-9914.2010.00468.x.

Michael Baker, Dwayne Benjamin, and Shuchita Stanger, 

“The Highs and Lows of the Minimum Wage Effect: A 

Time-Series Cross-Section Study of the Canadian Law,” 

Journal of Labor Economics, vol. 17, no. 2 (April 1999), 

pp. 318–350, http://dx.doi.org/10.1086/209923.

Other Studies of Effects on Employment

Peter Brummund and Michael R. Strain, “Does 

Employment Respond Differently to Minimum Wage 

Increases in the Presence of Inflation Indexing?” Journal 

of Human Resources (in press), http://dx.doi.org/10.3368/

jhr.55.2.1216.8404R2.

Anna Godoey, Michael Reich, and Sylvia A. Allegretto, 

Parental Labor Supply: Evidence From Minimum Wage 

Changes, Working Paper 103-19 (Institute for Research 

on Labor and Employment, May 2019), http://

irle.berkeley.edu/103-19/.

Dara Lee Luca and Michael Luca, “Survival of the 

Fittest: The Impact of the Minimum Wage on Firm 

Exit,” Working Paper 17-088 (Harvard Business School, 

August 2018), www.hbs.edu/faculty/Pages/

item.aspx?num=52552.

John J. Horton, Price Floors and Employer Preferences: 

Evidence From a Minimum Wage Experiment, Working 

Paper 6548 (Center for Economic Studies, July 2017), 

https://tinyurl.com/yyqcha7x.

Peter Harasztosi and Attila Lindner, “Who Pays for 

the Minimum Wage?” (draft, Joint Research Centre 

European Commission and University College London, 

March 2017), https://www.sole-jole.org/17708.pdf

(PDF, 1.6 MB).6

6. For a newer version, see Peter Harasztosi and Attila Lindner, 

“Who Pays for the Minimum Wage?” American Economic Review

(forthcoming), https://tinyurl.com/yy4wvl9n.

Shanshan Liu, Thomas J. Hyclak, and Krishna Regmi, 

“Impact of the Minimum Wage on Youth Labor 

Markets,” Labour, vol. 30, no. 1 (2016), pp. 18-37, 

http://dx.doi.org/10.1111/labr.12071.

Jeffrey Clemens, “The Low-Skilled Labor Market From 

2002 to 2014: Measurement and Mechanisms” (unpublished manuscript, University of California, San Diego, 

March 2016), https://mpra.ub.uni-muenchen.de/

75690/.

Research About Effects on Family Income

To develop its estimates of the effects of minimum-wage 

increases on family income, CBO drew on the following 

research.

Analyses of Effects on Family Income and the 

Poverty Rate

Joseph J. Sabia, Richard V. Burkhauser, and Taylor 

Mackay, “Minimum Cash Wages, Tipped Restaurant 

Workers, and Poverty,” Industrial Relations, vol. 57, no.4 

(October 2018), pp. 637–670, http://dx.doi.org/

10.1111/irel.12215.

Arindrajit Dube, Minimum Wages and the Distribution of 

Family Incomes, Working Paper 25240 (National Bureau 

of Economic Research, November 2018), www.nber.org/

papers/w25240.

7

Kevin Rinz and John Voorheis, The Distributional Effects 

of Minimum Wages: Evidence for Linked Survey and 

Administrative Data, Working Paper 2018-02 (Center for 

Economic Studies, 2018), https://ideas.repec.org/p/cen/

cpaper/2018-02.html.

Thomas MaCurdy, “How Effective Is the Minimum 

Wage at Supporting the Poor?” Journal of Political 

Economy, vol. 123, no. 2 (April 2015), pp. 497–545, 

https://doi.org/10.1086/679626.

Joseph J. Sabia and Robert B. Nielsen, “Minimum 

Wages, Poverty, and Material Hardship: New Evidence 

From the SIPP,” Review of Economics of the Household, 

vol. 13, no. 1 (March 2015), http://dx.doi.org/10.1007/

s11150-012-9171-8.

7. For a newer version, see Arindrajit Dube, “Minimum Wages and 

the Distribution of Family Incomes,” American Economic Journal: 

Applied Economics (forthcoming), https://tinyurl.com/y3gans45.
44 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

David Neumark and William Wascher, “Does a Higher 

Minimum Wage Enhance the Effectiveness of the Earned 

Income Tax Credit?” Industrial and Labor Relations 

Review, vol. 64, no. 4 (July 2011), pp. 712–746, http://

tinyurl.com/looy95w.

Joseph J. Sabia and Richard V. Burkhauser, “Minimum 

Wages and Poverty: Will a $9.50 Federal Minimum 

Wage Really Help the Working Poor?” Southern 

Economic Journal, vol. 76, no. 3 (January 2010), 

pp. 592–623, http://dx.doi.org/10.4284/

sej.2010.76.3.592.

Joseph J. Sabia, “Minimum Wages and the Economic 

Well-Being of Single Mothers,” Journal of Policy Analysis 

and Management, vol. 27, no. 4 (Autumn 2008), 

pp. 848–866, http://dx.doi.org/10.1002/pam.20379.

Robert H. DeFina, “The Impact of State Minimum 

Wages on Child Poverty in Female-Headed Families,” 

Journal of Poverty, vol. 12, no. 2 (October 2008), 

pp. 155–174, http://dx.doi.org/10.1080/

10875540801973542.

Richard V. Burkhauser and Joseph J. Sabia, “The 

Effectiveness of Minimum-Wage Increases in Reducing 

Poverty: Past, Present, and Future,” Contemporary 

Economic Policy, vol. 25, no. 2 (April 2007), 

pp. 262–281, http://dx.doi.org/10.1111/

j.1465-7287.2006.00045.x.

Congressional Budget Office, Response to a Request by 

Senator Grassley About the Effects of Increasing the Federal 

Minimum Wage Versus Expanding the Earned Income 

Tax Credit (attachment to a letter to the Honorable 

Charles E. Grassley, January 9, 2007), www.cbo.gov/

publication/18281.

David Neumark, Mark Schweitzer, and William 

Wascher, “Minimum Wage Effects Throughout the 

Wage Distribution,” Journal of Human Resources, vol. 39, 

no. 2 (Spring 2004), pp. 425–450, http://tinyurl.com/

ncgswlg.

David Neumark and William Wascher, “Do Minimum 

Wages Fight Poverty?” Economic Inquiry, vol. 40, no. 3 

(July 2002), pp. 315–333, http://dx.doi.org/10.1093/

ei/40.3.315.

David R. Morgan and Kenneth Kickham, “Children 

in Poverty: Do State Policies Matter?” Social Science 

Quarterly, vol. 82, no. 3 (September 2001), pp. 478–

493, http://dx.doi.org/10.1111/0038-4941.00037.

Lonnie K. Stevans and David N. Sessions, “Minimum 

Wage Policy and Poverty in the United States,” 

International Review of Applied Economics, vol. 15, no. 1 

(2001), pp. 65–75, http://dx.doi.org/10.1080/

02692170120013358.

John T. Addison and McKinley L. Blackburn, 

“Minimum Wages and Poverty,” Industrial and Labor 

Relations Review, vol. 52, no. 3 (April 1999), pp. 393–

409, www.jstor.org/stable/2525141.

Analyses of Spillover Effects From 

Changes in Wages and Employment 

David H. Autor, Alan Manning, and Christopher L. 

Smith, “The Contribution of the Minimum Wage 

to U.S. Wage Inequality Over Three Decades: A 

Reassessment,” American Economic Journal: Applied 

Economics, vol. 8, no. 1 (2016), pp. 58–99, http://dx.doi.org/

10.1257/app.20140073.

David Lee and Emmanuel Saez, “Optimal Minimum Wage 

Policy in Competitive Labor Markets,” Journal of Public 

Economics, vol. 96, no. 9–10 (October 2012), pp. 739–749, 

http://dx.doi.org/10.1016/j.jpubeco.2012.06.001.

David Lee, “Wage Inequality in the United States 

During the 1980s: Rising Dispersion or Falling 

Minimum Wage?” Quarterly Journal of Economics, 

vol. 114, no. 3 (August 1999), http://qje.oxfordjournals.org/

content/114/3.

Research About Other 

Effects ofthe Minimum Wage

CBO’s views on other issues were informed by the 

following research.

Research About Effects on the Budget Deficit

Jeffrey Clemens, “Redistribution Through Minimum 

Wage Regulation: An Analysis of Program Linkages 

and Budgetary Spillovers,” Tax Policy and the Economy, 

vol. 30, no. 1 (January 2016), pp. 163–189, https://doi.org/

10.1086/685596.
APPENDIX B THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE 45

Research About Effects on 

Consumption, Prices, and Profits

Arindrajit Dube, Alan Manning, and Suresh Naidu, 

Monopsony and Employer Mis-optimization Explain Why 

Wages Bunch at Round Numbers, Working Paper 24991 

(National Bureau of Economic Research, September 

2018), www.nber.org/papers/w24991.

Daniel Cooper, Maria Jose Luengo-Prado, and Jonathan 

A. Parker, The Local Aggregate Effects of Minimum Wage 

Increases, Working Paper 25761 (National Bureau of 

Economic Research, July 2018), www.nber.org/papers/

w25761.

Sylvia Allegretto and Michael Reich, “Are Local 

Minimum Wages Absorbed by Price Increases? Estimates 

From Internet-Based Restaurant Menus,” Industrial 

and Labor Relations Review, vol. 71, no. 1 (June 2018), 

pp. 35–63, https://doi.org/10.1177/

0019793917713735.

Brian Bell and Stephen Machin, “Minimum Wages and 

Firm Value,” Journal of Labor Economics, vol. 36, no. 1 

(January 2018), pp. 159–195, https://doi.org/10.1086/

693870.

Peter Harasztosi and Attila Lindner, “Who Pays for 

the Minimum Wage?” (draft, Joint Research Centre 

European Commission and University College London, 

March 2017), https://www.sole-jole.org/17708.pdf

(PDF, 1.6 MB).

Barry T. Hirsch, Bruce E. Kaufman, and Tetyana 

Zelenska, “Minimum Wage Channels of Adjustment,” 

Industrial Relations, vol. 54, no. 2 (April 2015), https://

doi.org/10.1111/irel.12091.

Daniel Aaronson, Sumit Agarwal, and Eric French, 

“The Spending and Debt Responses to Minimum Wage 

Increases,” American Economic Review, vol. 102, no. 7 

(December 2012), pp. 3111–3139, www.jstor.org/stable/

pdf/41724629.pdf (PDF, 3.3 MB).

Mirko Draca, Stephen Machin, and John Van Reenen, 

“Minimum Wages and Firm Profitability,” American 

Economic Journal: Applied Economics, vol. 3, no. 1 

(January 2011), pp. 129–151, www.aeaweb.org/

articles?id=10.1257/app.3.1.129.

Daniel Aaronson, “Price Pass-Through and the 

Minimum Wage,” Review of Economics and Statistics, 

vol. 83, no. 1 (February 2001), pp. 158–169, http://

dx.doi.org/10.1162/003465301750160126.

Studies of Technological Change and 

Minimum Wages

Grace Lordan and David Neumark, “People Versus 

Machines: The Impact of Minimum Wages on 

Automatable Jobs,” Labour Economics, vol. 52, no. 1 

(June 2018), pp. 40–53, https://doi.org/10.1016/

j.labeco.2018.03.006.

Daron Acemoglu and David Autor, “Skills, Tasks, 

and Technologies: Implications for Employment and 

Earnings,” in David Card and Orley C. Ashenfelter, eds., 

Handbook of Labor Economics, vol. 4, part B (Elsevier, 

2011), pp. 1043–1171, http://dx.doi.org/10.1016/

S0169-7218(11)02410-5.

Research About Effects on Fringe Benefits

Jeffrey Clemens, Lisa B. Kahn, and Jonathan Meer, “The 

Minimum Wage, Fringe Benefits, and Worker Welfare,” 

Working Paper 24635 (National Bureau of Economic 

Research, May 2018), www.nber.org/papers/w24635.

Brooks Pierce, “Recent Trends in Compensation 

Inequality,” in Katharine G. Abraham, James R. Spletzer, 

and Michael Harper, eds., Labor in the New Economy

(University of Chicago Press, 2010), pp. 63–98, http://

papers.nber.org/books/abra08-1.

Kosali Ilayperuma Simon and Robert Kaestner, “Do 

Minimum Wages Affect Non-Wage Job Attributes? 

Evidence on Fringe Benefits,” Industrial and Labor 

Relations Review, vol. 58, no. 1 (October 2004), 

pp. 52–70, http://tinyurl.com/o8lrxjh.

Research About Effects on 

Job Training and Schooling

Zsófia L. Bárány, “The Minimum Wage and Inequality: 

The Effects of Education and Technology,” Journal of 

Labor Economics, vol. 34, no. 1 (January 2016), pp. 237–

274, https://doi.org/10.1086/682346.

John Robert Warren and Caitlin Hamrock, “The Effect 

of Minimum Wage Rates on High School Completion,” 

Social Forces, vol. 88, no. 3 (March 2010), pp. 1379–

1392, https://doi.org/10.1353/sof.0.0316.
46 THE EFFECTS ON EMPLOYMENT AND FAMILY INCOME OF INCREASING THE FEDERAL MINIMUM WAGE July 2019

Daron Acemoglu and Jorn-Steffen Pischke, Minimum 

Wages and On-the-Job Training, Working Paper 7184 

(National Bureau of Economic Research, June 1999), 

www.nber.org/papers/w7184.

Research About Effects on Health

William H. Dow and others, Can Economic Policies 

Reduce Deaths of Despair? Working Paper 25787 

(National Bureau of Economic Research, April 2019), 

www.nber.org/papers/w25787.

George Wehby, Dhaval Dave, and Robert Kaestner, 

Effects of the Minimum Wage on Infant Health, Working 

Paper 22373 (National Bureau of Economic Research, 

March 2018), www.nber.org/papers/w22373.

Susan L. Averett, Julie K. Smith, and Yang Wang, “The 

Effects of Minimum Wages on the Health of Working 

Teenagers,” Applied Economics Letters, vol. 24, no. 16 

(2017), pp. 1127–1130, https://doi.org/10.1080/13504

851.2016.1259737.

Kelli A. Komro and others, “The Effect of an Increased 

Minimum Wage on Infant Mortality and Birth Weight,” 

American Journal of Public Health, vol. 106, no. 8 

(August 2016), pp. 1514–1516, https://doi.org/10.2105/

AJPH.2016.303268.

David O. Meltzer and Zhuo Chen, “The Impact of 

Minimum Wage Rates on Body Weight in the United 

States,” in Michael Grossman and Naci H. Mocan, eds., 

Economic Aspects of Obesity (University of Chicago Press, 

2011), pp. 17–34, www.nber.org/chapters/c11815.pdf.

Research About Effects on Crime

Zachary S. Fone, Joseph J. Sabia, and Resul Cesur, 

Do Minimum Wage Increases Reduce Crime? Working 

Paper 25647 (National Bureau of Economic Research, 

March 2019), www.nber.org/papers/w25647.

Andrew Beauchamp and Stacey Chan, “The Minimum 

Wage and Crime,” Berkeley Electronic Journal of Economic 

Analysis and Policy, vol. 14, no. 3 (July 2014), pp. 1–23, 

http://dx.doi.org/ 10.1515/bejeap-2013-0130.

Research About Effects on Workers’ Productivity

Decio Coviello, Erika Deserranno, and Nicola 

Persico, “Minimum Wage and Individual Worker 

Productivity: Evidence From a Large US Retailer” (draft, 

Northwestern University, February 2019), https://

tinyurl.com/y6sr2rd2.

Hyejin Ku, “Does Minimum Wage Increase Labor 

Productivity? Evidence From Piece Rate Workers” (draft, 

University College London, April 2018), https://tinyurl.com/

yyv7kcke.

Rebecca Riley and Chiara Rosazza Bondibene, “Raising 

the Standard: Minimum Wages and Firm Productivity,” 

Labour Economics, vol. 44 (January 2017), pp. 27–50, 

https://doi.org/10.1016/j.labeco.2016.11.010.

Alexandra E. Hill, “The Minimum Wage and 

Productivity: A Case Study of California Strawberry 

Pickers” (draft, University of California, Davis, 2017), 

https://tinyurl.com/yy9bqyn2.
List of Tables and Figures

Tables

1. Effects of Increases in the Federal Minimum Wage on Employment, 

Income, and Poverty, 2025 3

2. Projected Shares of Low-Wage Workers, by Group, 2025 10

3. Effects of Increases in the Federal Minimum Wage on Employment 

and Weekly Earnings, by Group, 2025 14

4. Effects of Increases in the Federal Minimum Wage on Average Annual 

Real Family Income, 2025 15

5. Effects of Increases in the Federal Minimum Wage on the Number of 

People in Poverty, by Group, 2025 19

A-1. Employment Elasticities Estimated by CBO for 2025, by Age Group 25

A-2. Employment Elasticities for All Directly Affected Workers, by Study 27

Figures

1. Effects of Increases in the Federal Minimum Wage on Employment 

and Family Income, 2025 2

2. Workers’ Hourly Wages and the Federal Minimum Wage, 1973 to 2029 6

3. Shares of Workers, by States’ Applicable Minimum Wage 7

4. Magnitude of Historical and Proposed Increases in the Federal Minimum Wage 8

5. Effects of Increases in the Federal Minimum Wage on Real Family Income, 2025 16

6. Shares of Workers, by Family Income Group, 2025 17
About This Document

This Congressional Budget Office report was prepared in response to interest expressed by a 

number of Members of Congress. In keeping with CBO’s mandate to provide objective, impartial 

analysis, the report contains no recommendations.

Nabeel Alsalam, David Burk, William Carrington, and Justin Falk prepared the report with 

guidance from Molly Dahl and Joseph Kile. Contributions were made by Jordan Berne, Devrim 

Demirel, Julia Heinzel, Evan Herrnstadt, Junghoon Lee, Kevin Perese, and Brooks Pierce. In 

addition, Rebecca Chenevert, Meredith Decker, Theresa Gullo, John McClelland, Shannon Mok, 

Samuel Papenfuss, and Jeffrey Werling provided helpful comments. 

An earlier version of this report was reviewed by Charles Brown of the University of Michigan; 

Arindrajit Dube of the University of Massachusetts, Amherst; and William Wascher of the 

staff of the Board of Governors of the Federal Reserve System. In addition, CBO received 

helpful feedback on its analytical approach from Daniel Aaronson of the Federal Reserve Bank 

of Chicago; McKinley Blackburn of the University of South Carolina; Jeffrey Clemens of the 

University of California, San Diego; Daniel Hamermesh of the University of Texas at Austin, 

Alan Manning of the London School of Economics; Jonathan Meer of Texas A&M University; 

Joan Monras of Universitat Pompeu Fabra; David Neumark of the University of California, 

Irvine; Michael Reich of the University of California, Berkeley; Jacob Vigdor of the University 

of Washington; and Justin Wolfers of the University of Michigan. (The assistance of external 

reviewers implies no responsibility for the final product, which rests solely with CBO.)

Mark Hadley, Jeffrey Kling, and Robert Sunshine reviewed the report, Christine Browne edited 

it, and Casey Labrack prepared it for publication. The report is available on the agency’s website 

(www.cbo.gov/publication/55410).

CBO continually seeks feedback to make its work as useful as possible. Please send any comments 

to communications@cbo.gov.

Phillip L. Swagel

Director

July 2019