What’s the deal with the CBO report?

Episode Summary

Executive Summary: The episode critiques the CBO’s $15 minimum wage report, arguing its job-loss forecast rests on flawed model-based assumptions that overstate harm. The hosts emphasize that recent empirical research finds little to no employment impact, while the report still shows substantial gains for workers, reduced poverty, and potential macroeconomic benefits even under its own assumptions.

Main Topics: What the CBO report says (Priority: 5/5): The hosts summarize the headline findings: projected job losses, deficit impact, higher prices, and major benefits such as poverty reduction and wage gains. Why CBO forecasts are viewed skeptically (Priority: 5/5): They explain the Congressional Budget Office’s role and argue its long-term economic forecasts are inherently uncertain and often inaccurate. The elasticity model and its bias (Priority: 5/5): The discussion breaks down how the CBO estimates job losses using employment elasticity, and why the hosts believe the chosen elasticity assumption is too high. Model-based studies vs. empirical studies (Priority: 4/5): The hosts distinguish between abstract economic models that predict job losses and real-world studies of minimum wage hikes, which they say usually find little or no negative employment effect. Evidence from Seattle and other local studies (Priority: 4/5): They cite Seattle minimum wage research, restaurant and grocery price studies, and automation findings to argue that recent data does not support catastrophic job-loss claims. Policy implications for the minimum wage (Priority: 5/5): Even if the CBO’s numbers were accepted, the hosts argue the increase remains a net win for workers and the economy, strengthening the case for a $15 federal minimum wage.

Key Arguments: The CBO’s minimum wage forecast is a model, not a direct measurement of reality, and model-based projections often overstate job losses. The CBO’s employment-elasticity assumption is much more negative than what many recent meta-studies and empirical analyses find. Recent minimum wage research—especially from Seattle and other local hikes—generally shows little or no employment harm and sometimes modest employment gains. Price increases from minimum wage hikes appear limited, with grocery prices showing no meaningful increase and restaurant prices rising only modestly. Automation trends, such as kiosk adoption at McDonald’s, are happening regardless of local wage levels, so they should not be attributed solely to minimum wage hikes. Even under the CBO’s own assumptions, the report suggests net gains for workers, reduced poverty, and meaningful income growth. A higher minimum wage could reduce public spending on unemployment and Medicaid while increasing payroll tax revenue, potentially lowering the deficit rather than raising it.

Data Points: Projected job losses: 1.4 million - CBO estimate for a $15 minimum wage by 2025 Projected deficit increase: $54 billion over 10 years - CBO estimate tied largely to job-loss-driven safety-net costs People lifted out of poverty: 900,000 by 2025 - CBO’s positive impact estimate Workers with higher income: 17 million Americans - CBO estimate of workers directly benefiting from wage increases Additional workers potentially affected: 10 million - Workers earning just above the new minimum who could also see wage gains Net pay increase to U.S. workers: $333 billion - Calculated increase in pay under the CBO scenario Share of deficit increase due to safety-net costs: 80% - EPI critique that most of the deficit effect comes from unemployment and Medicaid costs tied to job-loss assumptions Seattle study result: Net gain for workers - Hosts cite final University of Washington findings after more complete data was available Restaurant price effect: About 1% price increase for every 10% wage increase - Recent studies cited in the episode Mean vs. median method change: 2021 report used mean instead of median - Hosts argue this choice inflated projected job losses relative to the CBO’s 2019 approach Alternative elasticity estimate: Negative 0.04 - Dubay meta-analysis cited as near-zero employment effect Competing elasticity estimate: Closer to negative 0.2 - Newmark estimate mentioned as still less severe than the CBO’s assumption CBO elasticity used in report: Negative 0.38 - Hosts say this is much more negative than many studies support Deficit alternative estimate: $65 billion decrease per year - UC Berkeley study cited as opposite of the CBO’s deficit forecast Estimated share of affected workers: About 1 in 10 workers - CBO estimate for workers seeing wage increases

Pivotal Quotes: "It's only a model." — Goldstein: Used to argue the CBO forecast is a model-based projection, not a definitive prediction "The good side of the report found that a $15 minimum wage would lift 900,000 people out of poverty by 2025, raise income for 17 million Americans." — Constant: Summarizing the CBO report’s own benefits "Even if they hit it spot on... it’s still worth raising the minimum wage to $15 because this is a net win for workers and a net win for the economy." — Goldstein: Core policy conclusion of the discussion

Implications: Listeners should treat the CBO report as one forecast among many, not settled truth. The episode argues the broader evidence still supports a $15 minimum wage because it raises pay, reduces poverty, and likely has minimal employment harm.