Trump’s Minimum Wage Remarks Highlight the Flaws in Federal Mandates

​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.