Written By: Anna Tippner
Since the start of 2026, 19 states have raised their minimum wage; of those, 9 now exceed $15.00 per hour and 3 exceed $17.00 per hour. Throughout the year, 4 more states are expected to follow suit, increasing the total number of states that are on the path of having reached or exceeded a $15.00 minimum wage to 20 (Lanthrop, 2025).
The minimum wage was established following the passing of the Fair Labor Standards and Practices, a 1938 bill whose regulations initiated labor laws protecting workers. The law also set national standards for wages and working conditions including requiring time-and-a-half pay for overtime work, recordkeeping, and child labor standards. Over the 88 years since the passage of the Fair Labor Standards and Practices, the federal minimum wage has increased 22 times, from the initial $0.25 per hour to the latest $7.25, which was set in 2009 (Grossman, 1978). The minimum wage, as the name suggests, is the lowest legal hourly rate of pay that employers can legally pay their employees. In this manner, the federal minimum wage is a price floor, a set minimum price within the labor market. The labor market is made up of two parties, the suppliers of labor (workers) and the demanders of labor (companies). In standard economic theory, a binding minimum wage is set above equilibrium wage, creating a surplus of labor, meaning more people are willing to work than there are jobs available.
These increases have been driven by legislative actions, ballot measures, and inflation-indexed adjustments. While efforts to raise the minimum wage–most notably the “Fight for $15” movement, which advocated increasing it to $15 per hour–aim to improve living standards for low-wage workers, they may also bring complex economic consequences.
The merits of a minimum wage have long been contested, particularly because it creates a direct conflict between increasing the purchasing power of low-income workers’ and simultaneously potentially increasing unemployment and causing business closures.
Critics of minimum wage argue that setting a wage floor above the market rate causes significant economic distortions, primarily by reducing employment opportunities for low-skilled, young, or inexperienced workers. Thomas A. Firey of the Cato Institute argues that, “minimum wage laws prohibit employers from paying low-skilled workers the value of their labor”. Fiery continues that some labor isn’t valuable enough to justify paying the workers the increased minimum wage, plus other costs that employers must bear for workers (Firey, 2017). As a result, firms may try to pass these increased costs on to consumers through higher prices, with effects dependent on whether demand is relatively inelastic. Other strategies include cutting back on noncash benefits for its employees, including health insurance, pensions, research and travel budgets, buying cheaper office equipment, offering fewer training opportunities, and even replacing lower-skilled workers with higher-skilled workers (Clemens, 2021).
On the other hand, proponents of the minimum wage maintain the position that increases in the minimum wage reduce poverty and boost the economy. A study written in Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties, used pairings of cross-state counties, finding that the same increase in the minimum wage had strong earnings effects and no employment effects. It stresses that controlling for spatial correlation (similarity between data points geographically close with one another) is vital in ensuring statistical analysis is unbiased (Dube et al., 2010). Spatial equilibrium theory predicts that unemployment effects vary by economic and policy contexts. For instance, the effects of an increased minimum wage may be very different in areas with small, open economies where moving between jobs is easy (i.e. within a city), as opposed to an entire region (i.e. the Pacific Northwest). Similar findings from an extensive analysis performed by Belman and Wolfson (2014), who synthesized existing research and standardized the results by converting the findings into a standardized employment elasticity estimate, concluded that most estimates were clustered between –0.1 and 0.0, meaning any change in the minimum wage resulted in little measurable effect on employment. The review also concluded that the minimum wage does exhibit the intended effects of the economic policy, particularly by reducing wage inequality by raising the wages of those in the lower tail of the earnings distribution (Belman & Wolfson, 2014, p. 336). Taken together, these findings form the basis of the arguments pushed by proponents of the minimum wage: that wage floors can improve labor market outcomes for low-income workers proving to be minimally distortionary. They therefore argue that minimum wage increases can improve living standards for low-income workers while narrowing earning gaps, particularly in sectors where workers may have limited bargaining power.
Although economists continue to debate the full impact of minimum wage increases, there is good intention behind recent policy changes: to improve the standard of living for the working people to help shape a more equitable economy. As estimated by the Economic Policy Institute, the combined increases of the state minimum wages in 2026 is expected to benefit over 8.3 million workers, improving affordability by protecting workers’ purchasing power and providing predictability to employers by allowing for the planning of modest adjustments of worker pay each year (Hickey, 2025).
References
Burchett, M. H. (2023). Minimum Wage Laws: Law: Research starters: EBSCO research. EBSCO. https://www.ebsco.com/research-starters/law/minimum-wage-laws
Clemens, J. (2021). How do firms respond to minimum wage increases? Understanding the relevance of non-employment margins. Journal of Economic Perspectives, 35(1), 51–72. https://doi.org/10.1257/jep.35.1.51
Dube, A., Lester, W. T., & Reich, M. (2010). Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties. Institute for Research on Labor and Employment. https://escholarship.org/uc/item/86w5m90m
Firey, T. F. (2017). The Minimum Wage. Cato Institute. https://www.cato.org/cato-handbook-policymakers/cato-handbook-policy-makers-8th-edition-2017/61-minimum-wage#empirical-evidence
Grossman, J. (1978). Fair Labor Standards Act of 1938: Maximum Struggle for a Minimum Wage. U.S. Department of Labor. https://www.dol.gov/general/aboutdol/history/flsa1938
Hickey, S. M. (2025, December 16). Over 8.3 million workers will benefit from minimum wage increases on January 1: Nineteen states will raise their minimum wages. here’s where. Economic Policy Institute. https://www.epi.org/blog/over-8-3-million-workers-will-benefit-from-minimum-wage-increases-on-january-1-nineteen-states-will-raise-their-minimum-wages-heres-where/
Lathrop, Y. (2025, December 9). Raises from Coast to Coast in 2026. National Employment Law Project. https://www.nelp.org/insights-research/raises-from-coast-to-coast-in-2026/
Meer, J., & West, J. (2013). Effects of the minimum wage on employment dynamics (NBER Working Paper No. 19262). National Bureau of Economic Research. https://doi.org/10.3386/w19262