Michelle ThompsonAcross the United States, around half of the states increased their minimum wages in 2024. Most of these hikes took effect on January 1, with additional increases in Nevada, Oregon, the District of Columbia, and various localities starting on July 1. However, these wage increases might not be as beneficial as they seem. In fact, they could have unintended negative consequences for the very workers they aim to assist.
Take California, for instance, which now has the second-highest statewide minimum wage at $16 per hour, and a special $20 per hour minimum wage for fast-food workers. This increase has already led to significant problems. Many fast-food businesses have closed, and some started laying off staff and reducing hours even before the new law went into effect.
The situation extends beyond California. Nationwide, fast-food workers are among those most affected by job losses or reduced hours following minimum wage increases.
A McDonald’s ad claims that one in eight Americans has worked for the fast-food chain, a statistic true for my own family. My husband and I both started in minimum-wage jobs—he at McDonald’s and I at Pizza Hut—but neither of us remains in such low-wage positions today. These jobs were stepping stones, providing crucial work experience that helped us move up the career ladder. This is true for many Americans. Today, fewer than one in 1,000 workers earn minimum wage, and 60% of those who do are under 25.
Minimum-wage jobs are vital for gaining experience and moving to better-paying roles. However, if wage hikes continue, these entry-level positions may become less accessible. Many cities and states are pushing forward with wage increases. For example, Chicago’s minimum wage rose to $16.20, Oregon’s to $17, and Montgomery County, Maryland, saw an increase to $17.15 for businesses with more than 50 employees.
In Congress, a group of Democratic senators, including Bernie Sanders, is advocating for a federal minimum wage of at least $17 per hour.
While rising wages are generally positive when driven by increased productivity, government-mandated pay hikes can lead to unintended problems. Inflation has already raised costs for essentials like groceries and rent, leading people to seek cost-saving measures. Similarly, when employers face higher labor costs, they may cut costs by reducing employee benefits, eliminating jobs, increasing automation, or raising prices.
A National Bureau of Economic Research report found that higher minimum wages often lead to job losses, particularly affecting teens, young adults, and less-educated workers. This suggests that wage increases can harm the very individuals they aim to help.
For example, in South Carolina, a recent minimum wage hike led to an 8.9% reduction in employment for teens and a 15.5% decrease for workers without a high school diploma.
A $17 minimum wage, as proposed in the Raise the Wage Act of 2023, would result in an annual cost of about $42,000 per full-time worker, including wages, benefits, and taxes. Since many young and less-educated workers cannot generate this level of value initially, they might be excluded from the job market. The Congressional Budget Office estimated that a $17 minimum wage could push 350,000 younger and less-educated individuals out of the workforce entirely.
Even those who retain their jobs at higher wages might be worse off overall, as employers may offset wage increases by cutting employee benefits. A recent study showed that a $1 minimum wage increase in California led to an 11.6% decrease in total compensation for retail workers.
Employers may also turn to automation, such as self-service kiosks, or raise prices. Lower-income families, who spend a larger portion of their income on essentials, may be disproportionately affected by these price hikes. Additionally, a $17 minimum wage could raise child care costs significantly in low-cost states but have a minimal impact in high-cost states.
Instead of imposing wage mandates, policymakers should focus on helping workers achieve real income growth without unintended side effects. This could include expanding alternative education options like apprenticeships, reducing burdens on employers, and removing unnecessary barriers to employment, such as restrictive occupational licensing and limitations on independent work.
To prevent job losses and economic harm, policymakers should reconsider and reject minimum wage hikes that produce detrimental results.
