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The high cost of high minimum wages

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by Francois Melese, opinion contributor - 04/19/26 11:00 AM ET

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by Francois Melese, opinion contributor - 04/19/26 11:00 AM ET

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As gas prices soar in response to the Middle East conflict, low-income workers are hardest hit. Many view a boost in minimum wages as the solution.

New York City’s mayor, Zohran Mamdani, is pushing for “$30 in ’30,” to raise the city’s minimum from $17 today to $30/hour by the end of the decade. Supporters applaud lawmakers granting struggling workers a “living wage.” The logic seems clear: Wage hikes boost incomes, making life more affordable.

But although increases to the minimum wage help those lucky enough to keep their jobs, hours and benefits, they hurt many more.

A better approach with less downside is to lean on three established policies: direct subsidies to help cover expenses, cash transfers to boost incomes, and pro-growth policies that expand job opportunities.

The problem with minimum wages is that they ripple all the way up the labor ladder. To preserve morale and retain staff, entry-level wage bumps can force employers to raise everyone’s pay. But businesses already hurting from inflation and tariffs have little cushion to absorb higher wage bills. Some turn to AI and automation. Others cut hours, reduce headcount, or outsource work.

California’s 2024 fast-food experiment offers a cautionary tale. Even as the industry’s employment nationwide grew by about 1 percent from September 2023 to September 2024, California suffered a more than 3 percent drop, shedding nearly 20,000 jobs.

Pizza Hut made headlines when it laid off 1,100 drivers in California, switching deliveries to third-party apps like DoorDash, GrubHub and Uber Eats. A survey of nearly 200 restaurant owners found 89 percent planned to cut hours, and 35 percent to slash benefits. McDonald’s stores are already employing kiosks instead of people for orders and turning to AI-powered systems like “Flippy” for frying.

When wage floors rise above productivity, employers become more selective about whom to hire. Teenagers, recent graduates and low-skilled workers are the first to be priced out of jobs.

California’s youth unemployment rate is already nearly twice the national average. This is especially harmful since early work experience plays an important role in building skills and career momentum.

Unemployment among New York City’s 16- to 24-year-olds is more than 13 percent higher than the national average. Young Black and Asian workers are even worse off — both nearly 20 percent higher. More daunting is the fact that early joblessness correlates with lower lifetime earnings and higher criminal activity.

But job losses tell only part of the story. Higher labor costs ultimately show up in higher prices. California’s fast-food prices, already 12 percent above the national average in 2023, jumped to more than 20 percent higher in 2025. When higher costs flow through to prices, purchasing power erodes, shrinking “real” wages. This undermines affordability for everyone, but it hits minimum-wage workers hardest.

Another consequence of aggressive wage mandates is the risk of interventionist spirals, whereby one policy triggers another. Higher wage bills feed into price increases, triggering calls for price caps, anti-gouging rules, rent control and more. But a wide-ranging World Bank study finds government controls undermine growth, stifle investment, worsen poverty outcomes and impose heavy fiscal burdens.

So, what to do? As needy families struggle to cover rising gas and utility bills, rent, health care, child care and food, the World Bank suggests the answer lies in “pro-poor” and “pro-growth” safety nets — direct subsidies to help families cover essentials, cash transfers to boost take-home pay, and business-friendly policies to help create jobs.

The biggest direct food subsidy in the U.S. is the Supplemental Nutrition Assistance Program. With a federal budget of $100 billion, it serves around 42 million people, providing a low-income family of four nearly $1,000 a month.

The Earned Income Tax Credit is the largest U.S. cash transfer program. In 2025, roughly 24 million households received a combined $70 billion from the credit, with an average just under $2,900. Acting like a negative income tax, the credit is one of the most progressive elements of the federal tax code. Nearly half the benefits go to single mothers and more than 90 percent to working families making under $40,000 per year.

Some worry government assistance risks sinking into the swamp of “corporate welfare,” enabling employers to offer lower wages and benefits. But