Today, the U.S. Bureau of Labor Statistics released the latest data showing January’s inflation rate dropped to 2.4% year over year – down from 3.0% this time last year. Yet as inflation appears to be recovering from historically high rates – a new EPI policy brief shows recent minimum wage hike proposals could reverse this progress.
The report features a summary of decades of economist research on how wage hikes cause price increases – which finds a $1 increase in wages could trigger inflation increases as high as 5.5%.
This comes as many federal, state, and local lawmakers are pushing for high wage targets:
- $15 statewide wages in Pennsylvania, Virginia, Iowa, Ohio, and Michigan, among others;
- $16 in Kansas, $18 in Hawaii and Arizona;
- $20 in Tennessee, $25 in Maryland, and up to $30 an hour in New York;
- In Congress, proposals have been introduced to raise the federal minimum wage to $15 (Hawley, R-MO), $17 (Sanders, I-VT), and $20 an hour (Gallego, D-AZ).
Based on the historical research, it’s not hard to imagine these sky-high mandates could cause massive price increases for families across the country.
Key findings from EPI’s analysis include:
- Prices increase: A review of U.S. minimum wage studies shows a $1 increase in the minimum wage could trigger price increases of up to 5.5%.
- Rent rises: A Journal of Urban Economics study finds a $1 wage hike is associated with as high as a 10% increase in rent.
- Childcare costs skyrocket: Another study found previously proposed federal wage hikes could raise the cost of childcare by up to 20%, representing thousands more dollars in childcare costs for the average family.
- Research by a Stanford economist finds that minimum wage increases generate the largest price increases for the poorest 20% of households, who are least able to absorb higher costs.
- Cost of Living: In 2023, the top five states with the highest minimum wages were all among the top 10 states for the highest cost of living. States with the lowest cost of living all had minimum wages set at $11 per hour or below.
- California’s failed experiment: California’s $20 fast food minimum wage–one of the most drastic wage hikes in recent memory–created a 14% increase in food prices within one year of the law’s implementation.
Read the new brief here.