The New York Times says new wage hikes in effect this year will raise pay and help Americans struggling with rising costs. Decades of studies on the effects of raising the minimum wage say otherwise.
The authors are right to point out that affordability is top of mind for many, and becoming out of reach for some. But they are wrong to link minimum wage hikes as an antidote.
Minimum Wage Hikes Make Inflation Worse
So-called “living wage” activists say minimum wages need to keep up with inflation. However, state and local wage mandates, such as those mentioned like Colorado and Missouri, have actually grown as much as 80% faster than inflation over the last decade.
Comparing Cost of Living to Cumulative Growth in Minimum Wage
As state and local wage mandates have risen exponentially, affordability concerns have not subsided.
In fact, a survey of labor economists found that a majority believe minimum wage hikes actually worsen the cost of living. Research shows that higher minimum wage hikes have historically contributed to rising prices faced by consumers. One American Enterprise Institute study found that every $1 wage hike could cause as much as a 3.7% price increase in more rural, lower-cost of living areas of the country. In practical terms, that’s the equivalent of raising the price of a $7 Big Mac to nearly $8 each time the minimum wage increases by $1.
This is happening in real time in California. When the state spiked the minimum wage for fast food workers from $16 to $20 an hour in 2024, fast-food menu prices skyrocketed more than 14% in just a year under the new mandate.
The inflationary effects of wage hikes are not limited to food prices. Research published in the Journal of Urban Economics study finds that minimum wage increases also contribute to higher rent prices in the long term, with every $1 wage hike triggering as much as a 10% increase in rent.
To make matters worse, these inflation effects fall most heavily on those least able to absorb them. A Stanford University economist found that raising the minimum wage drives the largest price increases for the poorest 20% of families.
A Higher Hourly Wage Brings Fewer Jobs
The national patchwork of ever-rising minimum wage mandates isn’t just making inflation worse – it is also backfiring on workers.
A forthcoming study in the Journal of Labor Economics finds that states pushing toward the $15 hourly wage target ultimately left many workers worse off, especially for younger, entry-level employees. Economists Jeffrey Clemens and Michael Strain estimate that Fight for $15 wage hikes eliminated at least a quarter of a million jobs for younger, lower-skilled workers in eleven states that tried them.
When federal lawmakers were considering raising the federal minimum wage from $7.25 to $15 an hour in 2021, the Congressional Budget Office estimated such a change would cost as many as 2.7 million jobs nationwide, especially in rural, lower cost-of-living regions. The CBO also concluded the job losses would outweigh the policy’s poverty-reducing impacts, leaving roughly half a million more people jobless than lifted above the federal poverty line.
Taken together, the evidence from the past decade is clear: aggressive minimum wage hikes have repeatedly reduced employment opportunities for affected workers.
Conclusion
The Wall Street Journal columnist Jason Riley summed it up in a recent column about the New Year’s wage hikes:
“Americans are rightly upset about the sustained price pinch for food, energy, housing, autos and other goods since the pandemic. Making it harder for people to find employment won’t help their cause.”
A decade of state and local wage hikes have produced the same outcome again and again. They slash opportunities for workers, raise prices for consumers, and have minimal to no impact on lifting working families out of poverty.
Lawmakers weighing future increases should be wary of activists who highlight only the supposed benefits of higher wage floors while ignoring their well-documented costs. Policymakers should confront the full historical record before repeating policies that have consistently produced harmful consequences.