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How a $15 federal minimum wage could affect hiring trends, inflation: Morgan Stanley

A federal minimum pay increase to $15 an hour could mean a wage bump for up to 32 million workers by 2025. The move could also have an affect on hiring trends and inflation, according to economists at Morgan Stanley (MS).

“Research from the Congressional Budget Office (CBO) suggests that the policy is ultimately inflationary – and, if passed, would further support our above-consensus call for higher inflation in the years ahead,” said the note to investors.

Economist Ellen Zentner and her colleagues say the policy could reduce the net number of people in poverty by 900,000. The decrease would translate to an “outsized positive impact on the income of minority communities, where nearly 31% of Blacks and 26% of Hispanics would see an increase in labor income.”

The effects on employer hiring trends are less clear, writes Zentner.

“The CBO analysis concluded that higher labor costs could result in 1.4 million fewer workers in an average week in 2025.“

“A post-mortem look at the 2007-09 federal minimum wage increase is inconclusive as to whether it adversely impacted employment prospects,” said the economist note.

Though a $15/hour proposal does not have bi-partisan support, political momentum towards increasing it has been building. President Biden made it part of his campaign while running for the nation’s top job.

The current federal minimum wage is $7.25 an hour. It hasn’t been raised since 2009.

But Goldman Sachs chief economist Jan Hatzius doesn’t expect an increase any time soon.

"We think the odds of an increase to $15 are low,” said Hatzius.

Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre

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