For the first time in over a decade, momentum is building in the United States to raise the federal minimum wage. On April 8, 2025, lawmakers in Congress introduced the Raise the Wage Act of 2025, a bold proposal to gradually increase the federal minimum wage to $17 an hour by 2030 and eliminate the tip credit for restaurant workers. This legislation aims to break the political stalemate that has frozen the federal wage floor at $7.25 since 2009.
Yet this push from Congress is only one part of a broader national shift. As of January 1, 2025, 21 states and 48 city and county governments across the U.S. have increased their minimum wages to historic levels.
At first glance, this appears to be a straightforward way to improve living standards and reduce income inequality, offering hope to struggling workers amid rising costs and stagnant real incomes. However, beneath this surface-level appeal lies a complex web of economic trade-offs. Well-intentioned as they may be, minimum wage hikes risk harming the very workers they’re meant to help.
The Minimum Wage Illusion: How Higher Pay Mandates Backfire on the Vulnerable
The recent wave of minimum wage hikes across the United States sounds an economic alarm—even before the proposed $17 federal minimum takes effect. State and local governments are racing to raise the wage floor, with some cities setting new historical records. California and Connecticut now mandate minimum wages of $16.50 and $16.35 per hour, respectively, while Washington State has climbed to $16.66. Washington, D.C., stands at $17.95, and Seattle leads the pack with $20.76 per hour. If current trajectories hold, by 2027, nearly half of all U.S. workers will live in states with a minimum wage of at least $15 per hour.
To many, these increases sound like overdue economic justice. Its supporters argue that raising the minimum wage helps low-income workers keep pace with inflation and boosts consumer spending. But reality is more complicated. Businesses, especially small businesses, face tough choices when labor costs rise. Many are forced to cut staff hours, lay off workers, or pass costs on to consumers through higher prices.
The consequences are especially harsh for those already struggling to find work: young people, low-skilled workers, and individuals just starting their careers. These groups already face steep barriers to employment, and higher wage floors can push entry-level jobs further out of reach. According to the Bureau of Labor Statistics, workers under 25 made up only 20% of salaried employees in 2022 but accounted for 45% of those earning the minimum wage or less. Moreover, about 95% of minimum wage earners lack a high school diploma, and 75% work in service industries like food and entertainment —sectors with thin profit margins and limited capacity to absorb rising labor costs.
Recent unemployment data reinforces this troubling trend. In November 2024, while the overall U.S. unemployment rate stood at 4.2%, it soared to 13.8%—more than three times higher—among teenagers aged 16 to 19. The numbers were bleak for those without a high school diploma, with unemployment hitting 6%, or 50% above the national average. The pattern is clear: raising the minimum wage will price the most vulnerable workers out of the labor market, depriving them of opportunities to gain work experience and climb the economic ladder.
This trend is not new. A large body of economic literature has long warned of such effects. Economists Jeffrey Clemens and Michael Wither studied the 30% increase in the average minimum wage between 2008 and 2009. They found it reduced employment among working-age adults by 0.7 percentage points, amounting to 1.4 million lost jobs. Nearly half of those affected were aged 15 to 24. Similarly, research by David Neumark, Mark Schweitzer, and William Wascher confirms that minimum wage increases reduce entry-level job opportunities, making it harder for low-income households to escape poverty.
The True Cost of a $17 Federal Minimum Wage
Minimum wage laws are often framed as compassionate policy, but economics tells a harsher truth: wages can’t be set by political will—they must reflect market realities. Artificially raising the cost of labor reduces demand, especially for low-skilled and entry-level workers.
The numbers paint a troubling picture. According to the Employment Policies Institute, a $17 federal minimum wage could eliminate over 1.2 million jobs. Women and young workers between 16 and 24 would bear the brunt of the impact, representing 62% and 63% of those job losses, respectively. The restaurant and bar industry—already operating on thin margins—would suffer the most, making up 40% of all job cuts.
The impact would be even more severe if the federal tip credit were eliminated. Raising the tipped minimum wage by an astonishing 700% would put an additional 447,000 jobs at risk, bringing total projected losses to 1.65 million. Among tipped workers, 90% support keeping the current system, and 87% believe eliminating the tip credit would reduce their earnings. These are not abstract figures—they represent real people losing real opportunities.
Instead of imposing wage mandates, policymakers should foster labor market flexibility and eliminate barriers to employment. Abolishing minimum wage laws would protect workers’ and businesses’ rights to self-ownership and free association. While it may seem radical, several prosperous countries—like Switzerland, Sweden, Finland, and Norway—have thriving economies and higher wages without such government mandates.
Photo by Esther Lin
