Raising the Federal Minimum Wage Is a Solution in Search of a Problem

Ryan Bourne and Nathan Miller

Support for raising the federal minimum wage has picked up in recent years given affordability concerns. Supporters are united in the belief that the government has left workers behind as the purchasing power of that $7.25 minimum wage has been eroded by high inflation. Sen. Bernie Sanders (I‑VT) calls it “unacceptable,” and Sen. Josh Hawley (R‑MO) calls it a “failure” of minimum wage policy.

Our new briefing paper shows this premise is misguided, and the bills in Congress motivated by it carry significant risks.

The Minimum Wage Most Americans Face Isn’t $7.25

Most libertarians and many economists would say that the real minimum wage is $0—the wage if you don’t have a job. But the belief that workers and employers should contract freely doesn’t seem likely to return anytime soon. The federal wage floor is thus $7.25.

But the truth is, even this is irrelevant to almost all workers. First, real market wages have increased from productivity growth in certain sectors and spillovers into other sectors, leaving most market-clearing wages far higher than the federal minimum. Even among the 20 states that still adhere to only the federal minimum wage, Bureau of Labor Statistics data show that 10th percentile hourly wages still rose, on average, 5.4 percent from 2010 to 2025.

Second, minimum wages in the US today aren’t set solely, or even mostly, at the federal level. As a result of these two forces, only 1 percent of hourly workers today make the federal minimum or lower.

States can and do set higher floors, and many allow cities and counties to go further still. In accounting for this—weighting each jurisdiction by the working-age population subject to it—we calculate the effective minimum wage faced by the average American worker at $12.13 as of January 2026, not $7.25. The weighted median was even higher: Michigan’s $13.73.

Far from stagnant since 2009, the minimum wage faced by most Americans has grown. The national average effective minimum wage has grown 62.8 percent since January 2010, 8.4 percent growth after adjusting for inflation. While it’s trivially true that the federal minimum wage hasn’t changed since 2009, that fact about federal law doesn’t capture much about the economic reality for most workers.

That Makes a Higher Federal Floor a Risky Proposal

What most economists find destructive about a minimum wage isn’t its absolute dollar level so much as its bite. Minimum wage bites are typically measured by how high a wage floor sits relative to median hourly pay. That better captures how much of a labor market would be directly affected by a change.

A $17 wage floor in San Jose, the American metro with the highest median pay, would be a lesser disruption affecting relatively fewer workers. Half the metro already had an hourly wage above $40 in May 2025.

The same wage floor in rural areas or areas specialized in less-productive sectors than Silicon Valley would be a direct shock to a huge share of workers. Some would receive raises to the new minimum, but many others would lose their jobs, hours, or fringe benefits and other perks if $17 per hour simply isn’t viable. A recent Employment Policies Institute poll showed that economists continue to think these “disemployment” effects would be greatest at larger bites; 73 percent oppose a minimum wage up to $15 and 96 percent oppose one higher than $20. This chimes with older survey results from the Kent A. Clark Center at the University of Chicago and academic work about the risks of larger increases.

Because state and local minimum wages have already risen sharply in high-productivity, high–price level areas, some of those places would be unaffected by a much higher federal floor. The hardest hit areas would be rural, lower-wage areas often specialized in service industries—exactly the places where local policymakers have declined to raise wage floors because they have good reason to think it would be damaging. We project the most affected metro areas would be rural parts of Texas, Arkansas, and Alabama. Meanwhile, 56 cities and counties, the District of Columbia, and the whole of Washington state already have minimum wages above $17 (as high as $21.65 in Tukwila, Washington).

A $17 wage floor imposed in 2031, the policy called for in the Raise the Wage Act, would therefore push minimum wage bites to 75–80 percent of local median wages in the hardest-hit metros discussed above. The Living Wage for All Act, which would peg the federal minimum to two-thirds of the national median wage, would drive bites higher than 90 percent. High bites would likewise concentrate in certain industries more than others: Fast food workers, hosts and hostesses, ushers, cashiers, and dining room attendants would all see bites at or above 100 percent under the Living Wage for All Act. In other words, more than half of workers in those sectors would be directly affected (with many others indirectly affected as employers would likely seek to maintain meaningful pay differentials).

Conclusion

The effective minimum wage most workers face has been rising for years through state and local action. It’s now at one of its highest real levels in American history. We don’t think high state and local wage floors are a good idea either—they still eliminate job opportunities, especially among the young and unskilled while creating a whole range of distortions. But their existence seriously undercuts any supposed need for a higher federal floor too.

A high federal floor wouldn’t rescue a neglected labor market like its supporters claim. It would override a patchwork of local choices and bind most severely in the places where the economic case for caution is strongest. For low-wage regions and vulnerable workers, a high federal floor is more likely to destroy jobs than to be an effective anti-poverty tool.

The full briefing paper, including our methodology, metropolitan statistical area–level bite calculations for 2010–2025, and projected impacts of proposed legislation, is available here.

Source: https://www.cato.org/blog/raising-federal-minimum-wage-solution-search-problem