As we approach highly-anticipated midterm elections this November, some high profile Democrats are saying raising the federal minimum wage is a good political issue candidates should focus on. Most recently, Illinois Governor JB Pritzker claimed Congressional hopefuls and current lawmakers should push to raise the federal minimum wage as a promise to “put more money in people’s pockets.” This follows longtime Democratic strategist James Carville last year saying a $20 minimum wage should be a flagship issue for candidates.
Yet contrary to these claims, the economic evidence shows steep federal wage hikes will make life less affordable, and put more people out of work.
For Decades, Economists Have Found Wage Hikes Cause Job Losses
A nationwide $25 federal minimum wage has never been implemented. But economists and other policy experts have studied previous minimum wage changes at the state, local, and federal level. The vast majority of conclusions are clear: minimum wage hikes drive up labor costs, and leave many employers forced to downsize staff or reduce hiring.
- The vast majority (80%) of economic studies spanning three decades confirm minimum wage hikes cause job losses, according to a review of three decades of economists’ research published by the National Bureau of Economic Research. This review finds the most drastic job losses occur among teens and lower-skilled workers, those most entry-level.
- A study published in the Journal of Labor Economics found that large “Fight for $15” style increases, between 2011 and 2019, such as in New York or California, led to an employment rate decline of -2.6 percentage points, and an even greater decline for younger, lower-skilled individuals. EPI estimates that over that time period, that translates to roughly a quarter of a million jobs for young workers across the states included in the analysis.
- The nonpartisan Congressional Budget Office (CBO) has modeled the impacts of previous federal minimum wage proposals in recent years. In 2019, the CBO estimated a $15 federal minimum wage would cost up to 3.7 million job losses. In 2023, the CBO estimated a $17 federal minimum wage would kill more jobs than it would pull out of poverty.
- In an EPI survey of American economists, 95% of respondents believe a federal minimum wage like Murphy’s proposal will kill jobs for teens, and 96% said it could slash hospitality industry jobs across the country.
- A UC-Irvine study found a $1 increase in the federal tipped wage could cause as much as a 6.1% decrease in employment across the entire full-service restaurant sector.
Surveyed Businesses and Operators Report Wage Hike Harm
When local, state, and federal governments impose sky-high minimum wage mandates, businesses and their workers feel the pinch. A higher hourly wage requirement means restaurant operators and business owners must adapt to make the numbers work, like raising prices. If that isn’t enough to absorb rising labor costs, businesses have to reduce the size of their staff or limit hours.
- A survey of nearly 200 California restaurant owners found that the $20 fast food minimum wage has led 98% to raise prices, 89% to reduce employee hours, and 70% to reduce staff or consolidate positions.
- A survey of more than 100 Washington, D.C. restaurant operators found that nearly three-quarters (72%) expected to reduce staff or consolidate positions and 70% expected to reduce employee hours as the city’s tip credit was phased out.
Recent Jobs Data Builds on Economist Findings
The research isn’t just theoretical. Recent experience in jurisdictions that enacted large wage increases reflects many of the same patterns.
- In California, following the state’s $20 minimum wage for fast food workers, nearly 20,000 fast food jobs disappeared. Among workers who remained employed, Census Bureau data indicate they worked roughly seven fewer weeks per year on average.
- In the District of Columbia, full-service restaurant and bar employment tanked by roughly 5% since a tip credit elimination law began raising the tipped wage for full-service sector employees.
- In New York, recent minimum wage hikes have slashed roughly ten thousand jobs across the state and in New York City, where mandates for workers are even higher.
A $25 federal minimum wage would be far from an economic boost. In fact, decades of academic research does not support the claim that a $25 federal minimum wage would improve affordability for Americans. Instead, it risks pricing millions of workers out of the job market while driving up costs for everybody else.