What Are the Pros and Cons of Raising the Minimum Wage?

The minimum wage is the lowest hourly rate that an employer can pay a worker according to the law. Advocates argue that minimum wages should be increased, at the very least, to keep pace with inflation. Opponents say that higher minimum wages could have negative effects on employers. Read on to learn more about the debate, including more pros and cons.

Key Takeaways

• Despite efforts to raise the federal minimum wage, it hasn’t budged since 2009.
• Advocates argue that changes are needed to help incomes keep pace with increasing costs of living.
• Opponents believe that higher wages could lead to inflation, make companies less competitive, and result in job losses.

Understanding Minimum Wages

Minimum wage laws have been in effect in the United States since 1938, when the first federal minimum wage was set at $0.25 per hour. As the Fair Labor Standards Act (FLSA) has been amended over time, the federal minimum wage has increased. However, the federal minimum wage—$7.25 an hour—hasn’t increased since 2009.

Important

A minimum wage is not necessarily a living wage, which is the level of income that allows workers to meet their essential needs.

As of January 2025, Washington has the highest state-level minimum wage: it’s $16.66 per hour. Washington, D.C.’s minimum wage is $17.50 an hour.

Two states—Georgia and Wyoming—have statewide minimum wages that are less than the federal minimum wage: $5.15 for both states, compared to the $7.25 federal minimum wage. In these states, the federal minimum applies.

A handful of states have no minimum wage. In these states, the federal minimum also applies.

Pros of Raising Minimum Wages

The primary argument in favor of raising the minimum wage is that it would improve the overall standard of living for minimum wage workers by providing enough income to handle a rising cost of living.

A 2022 study by the Congressional Budget Office analyzed the macroeconomic impact of the standard minimum wage reaching $15 per hour in 2027. The data reported that 10.9 million workers would be directly affected, while an additional 9.2 million workers would potentially be affected. The total directly or potentially affected workers by 2032 would surpass 23 million.

While some proponents of raising the minimum wage estimate that a much larger number of individuals and families would move out of poverty if they earned more money, a related potential benefit is a projected reduction in the need for federal and state government expenditures on financial aid for low-income individuals.

Another benefit is improved worker morale resulting from higher wages. Business owners frequently note the challenge of providing sufficient encouragement to spur workers to put maximum effort into their job duties, and that this is particularly problematic with low-wage workers who feel that their job efforts aren’t keeping them out of poverty.

Increasing employee morale could easily translate into more tangible benefits, such as increased employee retention and reduced hiring and training costs. Employees who are more inclined to stay with a company longer could benefit from greater advancement and an overall reduction in job-related relocation expenses.

A boost to economic growth is another potential advantage of increasing the minimum wage, as consumer spending typically increases along with wages. A higher minimum wage would put more discretionary dollars in the pockets of millions of workers. This money would then flow to retailers and other businesses.

Note

Lawmakers have tried to raise the federal minimum wage on many occasions. The U.S. House of Representatives passed an amended version of the Raise the Wage Act of 2019 to gradually increase the federal minimum wage to $15 an hour by 2025. But the bill died in the Senate. President Joe Biden increased the rate for federal contract workers to $15 per hour.

Cons of Raising Minimum Wages

Among the disadvantages of increasing the minimum wage is the potential for businesses to raise prices, thus fueling inflation.

Opponents argue that raising the minimum wage would likely result in wages and salaries increasing across the board, thereby substantially increasing operating expenses for companies. This would then increase the prices of products and services to cover their increased labor costs.

Increased prices mean a general increase in the cost of living, which might negate any advantage gained by workers having more dollars in their pockets.

Important

Though the current federal minimum wage in the U.S. is $7.25 per hour, 30 states and Washington, D.C. have approved higher minimum wages.

Another projected problem resulting from an increased minimum wage is that of potential job losses. Those who point out that labor is a major cost of doing business argue that businesses will be forced to cut jobs to maintain profitability.

The same 2022 study mentioned above by the Congressional Budget Office also analyzed how higher wages may result in the elimination of roles. By 2027, the CBO estimated that up to 1.6 million jobs would be lost. By 2032, this would increase to 1.9 million lost jobs.

One potentially negative impact that is less readily apparent is the possibility that a higher minimum wage would result in increased labor market competition for minimum wage jobs.

The net outcome of an increased minimum wage might be a large number of overqualified workers taking minimum wage positions that would ordinarily go to young or otherwise inexperienced workers. This could impede younger, less experienced entrants to the job market from obtaining work and gaining experience to move their careers forward.

How Does the Minimum Wage Affect the Economy?

The impact of the minimum wage on the economy is a complex issue. Supporters argue that increasing the minimum wage can stimulate consumer spending and boost the overall economy by putting more money in the hands of low-wage workers. Critics, on the other hand, warn that higher labor costs might lead to job cuts, automation, and increased prices for goods and services.

Is the Minimum Wage the Same for All Workers?

No, minimum wage laws often take into account different categories of workers. For example, there might be different minimum wage rates for adult workers, minors, or workers in specific industries. Tipped employees, like servers in restaurants, may also have a lower minimum wage due to the expectation of receiving tips.

Does Inflation Impact the Minimum Wage?

Yes, inflation can erode the purchasing power of minimum wages over time. To address this, some governments index the minimum wage to inflation rates. This means that the minimum wage is adjusted periodically to ensure that its real value remains relatively constant.

How Does the Minimum Wage Affect Small Businesses?

The impact of minimum wage increases on small businesses can vary. Some small businesses might struggle to absorb the additional labor costs, potentially leading to layoffs or reduced hours. Others might adapt by increasing prices or finding operational efficiencies to mitigate the impact.

Do All Countries Have Minimum Wage Laws?

While minimum wage laws are prevalent in many countries, not all nations have implemented such legislation. The presence and level of minimum wages often depend on a country’s economic structure, labor policies, and social priorities.

The Bottom Line

Raising the federal minimum wage to $15 an hour is a policy goal for many lawmakers. Increasing the minimum wage is expected to lift individuals out of poverty and improve work ethic, however, it also comes with many possible negative implications, such as inflation and a loss of jobs.