​Originally published at American Institute for Economic Research.

President-elect Donald Trump recently reignited the minimum wage debate, calling the current federal minimum of $7.25 an hour “a very low number” and saying, “I would consider” raising it. He also acknowledged that a one-size-fits-all approach “wouldn’t work,” pointing to vast differences in living costs between states like Mississippi and California. 

These comments, made during a recent interview, highlight the ongoing tension surrounding wage mandates and their nationwide impact on workers and businesses. While some states are moving aggressively toward higher pay floors, the consequences of these policies remain deeply problematic.

In 2025, 23 states and 65 cities and counties will raise their minimum wages. Three states — Illinois, Delaware, and Rhode Island — will reach $15 an hour for the first time, joining seven others already there or above. Local jurisdictions are pushing even further, with some, like Burien, Washington, setting minimum wages as high as $21.16 for large employers. These increases aim to help workers keep up with the cost of living, but they come with significant unintended consequences.

Higher minimum wages often accelerate automation as businesses seek alternatives to paying higher labor costs. Fast-food chains, for instance, are replacing cashiers with self-service kiosks, which don’t require benefits, breaks, or overtime. This shift creates opportunities for higher-paying jobs in designing and maintaining these machines but eliminates entry-level positions that many low-skilled workers rely on. The same trend is in other industries, from warehousing to customer service, where robots and AI tools are increasingly replacing human labor. 

Policymakers unintentionally fast-track this transition by mandating higher wages, leaving many workers behind.

At the same time, rising labor costs make outsourcing and offshoring more attractive to businesses. Manufacturing jobs face additional pressure as domestic wages climb artificially based on government mandate rather than profitability. Even customer service roles are increasingly outsourced to countries with lower wages, reducing opportunities for American workers. Instead of lifting people out of poverty, these policies often shift jobs to foreign markets, undermining their intended purpose.

The consequences of wage mandates don’t stop there. Higher minimum wages act as a cost-of-living floor, driving up prices for goods, services, and housing. Businesses pass on the increased costs to consumers, and in states like California, where fast-food workers now earn $20 an hour in some cities, this dynamic is particularly stark. The result is a higher cost of living that erodes any gains from larger paychecks, leaving workers no better off than before. 

These pressures are especially acute for small businesses operating on thinner margins and struggling to absorb rising labor costs.

One often-overlooked consequence of minimum wage hikes is their impact on illegal immigration. As businesses face higher labor costs, some turn to undocumented workers who accept wages below the legal minimum. This practice distorts the labor market and creates unfair competition for lawful employees. By incentivizing illegal hiring, wage mandates contribute to a cycle undermining the workers they are meant to protect.

Unemployment is another harsh reality of wage mandates. When businesses can’t afford to pay workers at mandated rates, they cut jobs, reduce hours, or halt hiring. The minimum wage becomes irrelevant if low-income and entry-level workers can’t find employment. Many are pushed toward government assistance, perpetuating cycles of dependency. This outcome is a stark reminder that wage mandates often harm the people they intend to help.

These consequences underscore the flaws in a federal minimum wage. Trump was right to note that economic conditions vary dramatically between states like Mississippi and California, making a uniform wage floor untenable. States with lower living costs often have smaller business margins, and higher wage mandates can force closures or relocations. Even in high-cost states, wage mandates face resistance. In 2024, voters in California and Massachusetts rejected proposals to raise the minimum wage for specific groups of workers, citing concerns about higher prices and job losses.

Rather than imposing wage floors, policymakers should focus on pro-growth solutions that allow wages to rise naturally. Spending, taxing, and regulating less fosters competition so businesses thrive and workers benefit. When businesses grow and compete for employees, wages rise organically, reflecting productivity and market conditions. These increases are sustainable and equitable, avoiding the unintended consequences of mandates.

When labor costs are artificially inflated, businesses must adapt, often in ways that harm workers. A better strategy is to create opportunities for skill development and innovation, ensuring workers can earn more through higher productivity rather than government intervention.

Trump’s suggestion that federal wage mandates “wouldn’t work” reflects an important truth. Allowing states — or better yet, markets of people negotiating voluntarily — to determine wages ensures they reflect local realities. By removing wage mandates, businesses and workers could negotiate pay based on skills, experience, and regional costs, creating a more dynamic and inclusive labor market.

The minimum wage hikes set to take effect in 2025 will undoubtedly impact millions of workers, but they also serve as a reminder of the economic trade-offs involved. From job losses and automation to higher costs and illegal hiring, these policies carry unintended consequences that undermine their intended benefits. A better path forward lies in market-driven solutions empowering workers and businesses.

O​n January 1st, 22 states and 38 cities and counties raised their minimum wages, sparking some celebration for 10 million workers who get a pay hike, and many doubts for the rest. 

While this is perhaps a well-intentioned policy, intentions don’t indicate a policy’s effectiveness. Many economists argue that this decision will disadvantage the people it aims to help, namely, lower-skilled workers. 

Minimum wage hikes aim to make it “livable,” an increasingly frequent discussion due to government-created rampant inflation in recent years. I don’t disagree that $7.25 hourly, the federal minimum wage matched by many states, is insufficient for most to afford necessities. But helping lower-skilled workers move up the economic ladder is more complex than governments arbitrarily raising wages. 

Because I want to see everyone flourish, especially the neediest among us, I’m against a minimum wage and definitely against increasing it more.

Elevating the minimum wage this drastically and suddenly will lead to widespread job losses, because employers must balance profitability with labor that costs more but adds no higher output. 

The spate of layoffs by major corporations in 2023, driven by slowing sales exacerbated by decreased purchasing power, demonstrates this reality. Now, envision a scenario where these higher-paid retained workers burden employers. Rather than a boon, this often translates into more layoffs or price hikes as companies seek to maintain profitability. 

The optimistic projection by the Economic Policy Institute, suggesting a $6.95 billion windfall for workers from the recent state minimum wage increases, rests on a questionable assumption that every worker will retain his job. In reality, employers may resort to cost-cutting measures to stay profitable, jeopardizing quality and output, and ultimately resulting in layoffs. 

If an employer must pay someone $16 hourly, the new minimum wage in New York and California, whom will they pay? 

Would it be a higher-skilled college graduate or a less-skilled worker with only a high school diploma? You can deduce which hire is the safer option. When the cost of obtaining more education or skills is higher than the cost of relying on government unemployment benefits, dependence becomes the more appealing choice over labor-force participation.

Another often-overlooked negative impact of minimum wages is decreased negotiating power. When workers with qualifications and experience who merit higher pay are confined to a predetermined minimum wage, their bargaining potential is stifled. 

These labor market dynamics, however, extend beyond individual choices. The intriguing patterns in state migration rates underscore how higher minimum wages deter people from seeking better opportunities. 
Look at California and New York, champions of minimum wage increases. 

Both experienced some of the highest rates of outmigration in 2023. Conversely, with their comparatively lower minimum wages, Texas and Florida witnessed a substantial influx of new residents. 

People vote with their feet. 

The allure of better prospects, lower living costs, and increased job opportunities in states with few-or-no minimum wage hikes outweighs the appeal of higher minimum wages in other states.

States with lower minimum wages continue to increase in appeal because, contrary to popular belief, only a very small share of hourly paid workers earn minimum wage, and not for long. 

Professor of Economics at UC San Diego Jeffrey Clemens’ findings reveal that most minimum-wage workers experience consistent wage growth over time. According to his research, over 12 months, about 70 percent of individuals studied initially employed at or near the minimum wage saw an improvement in their earnings, with an average wage increase of $1.39. The data suggest that the narrative surrounding the persistence of “career minimum wage workers” applies to very few people.

But even so, those low-wage jobs maintain value. 

Low-wage positions, typically entry-level or part-time jobs, serve as the initial rung toward better opportunities with higher pay. 

Unfortunately, governments inadvertently eliminate many of these essential entry-level jobs by advocating for higher minimum wages. This lost first rung has profound consequences, especially for vulnerable groups like young individuals, part-time workers, the unmarried, and those without a high school diploma. Such individuals rely on these low-wage positions for income and to escape the cycle of government dependency and poverty. 

Employers and workers alike deserve freedom. Burdensome government regulations that hinder free-market flourishing culminate in the mandated minimum wage, which stifles opportunity rather than allowing spontaneous order to create jobs and economic growth. 

The states that just increased the minimum wage will experience more problems than they’ve already created. People will continue to vote with their feet. Hopefully, leaders at federal, state, and local levels will come to grips with the best paths to help people prosper, however unpopular those paths may be.

These paths that improve productivity to demand higher market wages and increase output to supply higher-paid jobs are found in an institutional framework of free-market capitalism. Specifically for the labor market, politicians should provide universal school choice, remove government obstacles like occupational licensing and forced union dues, rein in spending to cut taxes, and reduce regulations.

In short, more government isn’t the answer to higher wages because government is the problem. Let’s not double down on government failures.

Originally published at AIER. 

A Big Mac attack can now be satisfied with nearly no human contact, all from the comfort of the car.

​The largest fast food chain in the country, McDonald’s, is testing a highly automated location with no indoor seating just outside Fort Worth. It is the only location like this in the country.

“The features – inside and outside – are geared toward customers who are planning to dine at home or on the go,” a McDonald’s press statement explained of the design.

The restaurant at 8540 West Freeway in White Settlement has multiple modes for ordering and receiving the fare. A dedicated drive-through lane allows for ordering ahead and picking up burgers and drinks from a conveyor belt. An employee takes the order number and is available to answer questions throughout the process, a company spokesperson said.

Order kiosks inside the location accept cash or credit, parking is available for curbside pick-up, and food couriers like GrubHub drivers have a dedicated area to streamline their interaction as well.

According to the spokesperson for McDonald’s, customers appreciate the new technology and ease of ordering associated with the “Order Ahead Lane.” He also claimed delivery drivers appreciate the simplicity of an area just for them to pick up customers’ orders.

Franchisee Keith Vanecek and Manager Rosemin Jussab are two of the people behind the operation of the new test restaurant.

Jussab, who has worked for McDonald’s for 20 years since her college days, enjoys the challenge and the technology that comes along with it. “The focus on technology within this restaurant is amazing and shows the emphasis we put on innovation; it’s exciting to be a part of,” she said in a press release.

For those concerned that an automated restaurant like this one will eliminate entry-level jobs, McDonald’s says it anticipates this restaurant format will require a comparable number of team members to a traditional store. Employees are required for interaction between customers and the restaurant team when picking up orders, assisting with using the self-order kiosks, and delivering curbside orders.

The recent coronavirus pandemic likely contributed to the speed of automation we are seeing in industries like fast food restaurants today, economist Vance Ginn told The Texan.

Ginn said the pandemic has led to difficulty finding workers, inflation has raised the wages demanded by entry-level workers, and high turnover rates have increased costs for training. Combined, these factors have contributed to an acceleration in the implementation of technology like the new test location of McDonald’s.

“Businesses have to make a profit or they don’t stay in business,” Ginn noted.

“Short-term [the automation] may have some costs, but other jobs will come around,” Ginn said. He suggested a shift to other jobs will take place as has always happened when technology advances and crowds out another industry.

“When the Model T was created, people cried about the end of horses and buggies, but we wouldn’t want to go back,” he added.

Additionally, entry level workers may be incentivized to get training in higher technical skills to participate in the workforce.

McDonald’s is aiming to serve its customers more satisfactorily and seamlessly through the use of automation at its new test location. The chain has struggled with customer satisfaction, falling at the bottom of the list 15 points behind Chick-Fil-A, a perennial leader with employees declaring their “pleasure” in serving customers.

Whether the newest test location will help McDonald’s move up in the satisfaction rankings, and whether it is adopted elsewhere, remains to be seen.

“That’s the beauty of the free market,” Ginn commented. “Businesses can try new things and see if they are profitable. It allows for experimentation.”

Originally published at The Texan. 

​Twenty-one states rung in the New Year by raising their minimum wage, to as high as $15 per hour in California, thinking it will benefit employees in those states. But the minimum wage does the opposite of helping workers, especially for those who need it. Fortunately, 20 states, including Texas, haven’t raised theirs in more than a decade.

Proponents of the minimum wage claim the law helps hard-working people with a “living wage.” But that’s not what the policy does. Economist Art Laffer put it succinctly: “A high minimum wage is extremely damaging to the poor, the minorities, the disenfranchised, and the young.”

As with most policies, the effects of a policy matter more than the best intentions of those who champion the policy’s cause.

The minimum wage reduces jobs and increases poverty. People even move from states with a high minimum wage to states with a lower minimum wage because there are more jobs and more opportunity. That is especially true for young people and others without much experience, on-the-job training, or education.

If you want to know which policies people prefer, see how they vote with their feet. The latest Census Bureau data shows that more than 1,000 people each day moved to Texas in 2021. But the Lone Star State is not alone in attracting new businesses, jobs, and people. Other states with low minimum wages attracted more people than average while states with high minimum wages—California, New York, Illinois—are hemorrhaging people at an alarming rate.

The real minimum wage for employees is always $0. If an employee adds only $8 of value per hour to a business, but the minimum wage is $15, then that person will be unemployed, hence a $0 wage.

As many states have arbitrarily pushed their minimum wages higher for political reasons, low-wage workers are slowly being replaced by machines. This is the classic labor-capital tradeoff forced by government coercion through a labor market regulation rather than through voluntary negotiations by people.

For example, some fast-food restaurants are replacing cashiers with kiosks, which tends to reduce hiring of lower-paid workers while oftentimes increasing higher-paid workers who create, build, and maintain the kiosks. This process increases income inequality, which is something proponents often find concerning.

Although it is never a good idea to raise the minimum wage, now would be a particularly bad time.

Businesses are already facing record-high cost increases from price inflation and a government-mandated minimum wage increase would just be adding insult to injury. The latest data show there are 10.6 million unfilled jobs in the U.S. which is far exceeds the 6.3 million unemployed people. While this precarious labor market situation has many causes, a high minimum wage is certainly not helping.

By eliminating some low-skill jobs, the minimum wage reduces the opportunity for many people to climb the ladder of success. Without that entry-level job, many people never escape the cycle of government dependency and poverty, never gain skills, and never become eligible for higher-skill jobs. That creates a mismatch in the labor market for better jobs.

Some of the compensation people receive in their first job isn’t even monetary; it’s learning skills, dignity, and purpose. A first job teaches a person how to work hard, the value of showing up on time, and how to work with others.

Low-wage jobs are not designed to support a family; they’re an important first step on the ladder of success to better jobs with higher pay. Governments raising the minimum wage eliminates many of these jobs, and that cuts out the first rung on the ladder for those who are most vulnerable.

Opportunity and work provide the best path to a successful, self-sufficient, rewarding life. Eliminating this pathway segregates those individuals and confines them to dependency on government.

This disproportionately affects those groups (young, part-time workers, unmarried, and without a high school diploma) who rely on a low-wage first job to give them a hand up out of poverty.

If we truly want a level playing field for all employees and equal opportunity for all, the last thing we want is a higher government-mandated minimum wage.

​https://www.texaspolicy.com/why-21-states-were-wrong-to-raise-their-minimum-wage/

The COVID-19 pandemic has changed our routines, but it doesn’t change the laws of economics. Yet it seems government is in the business of doing something when it really should do nothing, such as the recent proposals by President Biden and Congress to spend more and raise the federal minimum wage in the name of pandemic relief.
These actions would not only make a bad economic situation worse, especially for the ones the policies are intended to help, but they would destroy the unity that the president says he wants.
We’ve already seen the devastation that government action can cause during the pandemic, as the broad U6 unemployment rate remains at an elevated 11.1% and almost 800,000 people are filing initial jobless claims every week. The government shutdowns are an unfolding tragedy, and we won’t know their full extent for years to come.
But, as usual, there’s another attempt to put a patch on the American economy with an unnecessary, poorly crafted monstrosity of a $1.9 trillion COVID-19 relief package, which includes raising the federal minimum wage from $7.25 to $15 per hour by June 2025.
This boondoggle sends taxpayer money to people through checks when real personal income reached a record high in 2020. Its higher unemployment payments will distort incentives to work. And it will bail out profligate state and local governments when they’ve already received nearly three times more in taxpayer funds than their estimated losses.
Collectively, this package could delay the needed reopening of our economy, the only real path to regain Americans’ taken prosperity.
The focus of a package—if it must be done—should be to get the vaccines out as quickly as possible to open America now so that people can regain their prosperity they had before the pandemic. Better yet, a pro-growth approach of spending restraint, tax relief, and deregulation would be a better federal response.
In fact, the latter two measures (tax relief and deregulation) were practiced by the Trump administration and it contributed to records of the highest real median household income and lowest poverty rate in 2019. And while President Trump’s budgets found more fiscal savings than any other president, Congress continued to spend excessively—thereby bankrupting us and our country in the process.
But what’s getting a lot of media attention recently without much consideration of its cost is the Raise the Wage Act that the Democrats in Congress are trying to push through. This arbitrary hike of the federal minimum wage would be a mistake as it would separate us in terms of economic status and further divide us as a nation. That’s not what I would consider as “unity.”
According to a 2019 Pew Research poll, about two-thirds of Americans supported increasing the minimum wage to $15. But at what cost, given that nothing is free?
For example, the Congressional Budget Office recently reported that passing the Raise the Wage Act could mean as many as 2.7 million workers lose their job and earn the real minimum wage of $0. This would also come at the cost of $54 billion more to the national debt, further bankrupting us. And while the number of people lifted up from poverty could be 900,000, many of them will face higher prices, higher taxes, and higher interest rates making it harder for even those lucky enough to not lose their jobs to make ends meet.
But this analysis misses two key points that should not be overlooked: 58.5% of Americans earning the minimum wage are between 16 to 24 years old, and costs of living vary greatly across states, with California being 50% more expensive than Texas.
This means that those who will be hit hardest by raising the minimum wage are those just trying to get their foot on the bottom rung of the economic ladder, and typically have other sources of income. In fact, raising the minimum wage can benefit high-wage, highly skilled people at the expense of low-wage, low-skill people as employers move from labor to capital in their operations. This actually increases income inequality.
And states that have done a good job in keeping the cost of living low, like Texas (due to more pro-growth policies resulting in increased economic freedom) are hit hardest compared with those that don’t, like California. We should let federalism’s system of “laboratories of democracy” continue to prove that people vote with their feet, as the number of Californians moving to Texas increased by 36% in 2018.
America may still be suffering through the chaos of COVID-19, but that doesn’t mean we need more of it. President Biden should give doing nothing a chance, especially his policies that will bankrupt the country and force increased unemployment.

https://www.texaspolicy.com/president-bidens-unity-policy-means-increased-poverty/