As the rising cost of living continues to be a top concern for many Americans, increased minimum wage proposals are gaining traction across the country. In New York City, where the current minimum wage is $17 an hour, council members have introduced a bill that would raise the minimum wage for large employers to $30 an hour by 2030. In California, activists in Oakland and Alameda County (where the local minimum wages range from $16.90 to $19.90) are similarly working to advance a $30 an hour minimum wage in their respective localities. While these proposals are often pushed as a solution to affordability concerns, substantially raising the cost of labor risks reducing job opportunities and raising prices, making life harder for the very workers they are meant to help.
Good intentions do not eliminate tradeoffs. A higher minimum wage does not automatically make workers more productive, and when the government pushes the cost of labor far above the value some workers can produce, employers respond accordingly: they cut jobs, reduce work hours, raise prices, and delay expansion. The burden is shifted onto workers trying to make a living and consumers already struggling with rising prices.
California put these principles to the test when the state legislature increased the minimum wage for fast food workers. For most workers in California, the statewide minimum wage is $16.90 an hour (with some localities opting for higher minimum wages). But in April 2024, lawmakers created a separate $20 minimum wage for employees of fast food chains, with advocates claiming that the industry’s large corporate structure, high turnover rate, and history of labor disputes justified preferential treatment.
This carveout raises an obvious question: why should one category of low-wage workers be required to have a significantly higher wage by law while cashiers, retail workers, caregivers, and other employees performing similarly demanding entry-level work remain under a lower standard? Rather than applying a consistent standard across similar forms of entry-level work, legislators singled out the fast food industry for significantly higher labor costs. This created a natural experiment showcasing what happens when the government imposes a significant wage increase on a highly competitive and labor-intensive industry.
Before the policy took effect, many franchise owners and fast food chains — including McDonalds, Chipotle, and Pizza Hut — warned the wage mandate would lead to fewer jobs, higher prices, and accelerated automation. Some businesses responded by expanding self-service kiosks and other labor-replacing technology to offset higher wages. Others objected to how the law defined what “fast food” is. Panera Bread, for instance, drew scrutiny over its exemption from the law under an arbitrary carveout for restaurants that bake and sell bread. Instead of merely raising pay for fast food workers, California’s policy incentivized companies to cut labor costs, automate tasks, and seek preferential treatment to escape the higher wage floor.
A recent National Bureau of Economic Research (NBER) study found that, after accounting for preexisting trends, the minimum wage hike cost the state of California about 18,000 fast food jobs. This outcome reflects the concerns many restaurant operators and national chains raised before the policy took effect, warning that the wage mandate would force them to cut jobs. The policy reduced job opportunities in the type of sector where many younger and less experienced workers start out.
The costs also appeared at the cash register. Another NBER paper found that the minimum wage increase caused prices to increase by an estimated 3.3 to 3.6 percent. This means that the cost of increased wages has been passed on, at least in part, to customers. This raises pressure on families already struggling with affordability.
The notion that such policies come with little to no downside is largely unsupported by research. In a broad review of minimum wage research, economists David Neumark and Peter Shirley concluded that “there is a clear preponderance of negative estimates in the literature.” In other words, most of the evidence indicates that minimum wage hikes reduce employment. They also found that the evidence of negative employment effects is stronger for individuals who often rely on entry-level jobs as pathways to the workforce: teens, young adults, individuals with lower levels of education, and low-wage workers. When policymakers increase the cost of hiring, the least advantaged workers bear much of the burden.
Proposals to drive the minimum wage to $30 an hour must be met with skepticism. If a wage floor of $20 an hour in one major industry leads to fewer jobs and higher prices, policymakers should at least reconsider before assuming a much larger wage push will be painless across a broader swath of the economy. If policymakers really want to help workers, they should focus on policies that expand opportunity and increase productivity, not wage floors that risk pricing disadvantaged workers out of the labor market.
Nicholas Huff is a policy intern at Americans for Prosperity.
