The minimum wage is the lowest hourly wage under the law that an employer can pay employees. The current minimum wage in the U.S. is $7.25 an hour, and it’s been the same rate since 2009. The question of whether to raise the minimum wage is a matter of great debate.
There are a number of pros and cons of raising the minimum wage. For example, advocates say that increasing the minimum wage could help low-wage hourly workers make ends meet and keep up with inflation. Some proponents also believe that raising the minimum wage could increase consumer spending and strengthen employee retention and morale.
But opponents point to cons of raising the minimum wage, including potentially increasing the cost of living overall, reducing opportunities for inexperienced workers, and triggering more unemployment.
Read on to learn more about the pros and cons of increasing the minimum wage and potential effect it could have on the economy — and your finances.
Key Points
• The federal minimum wage has not changed since 2009, despite inflation.
• There are arguments for and against raising the minimum wage. Proponents say raising it could help low-wage workers escape poverty and keep up with inflation.
• Increased wages might also lead to higher consumer spending and reduced reliance on government assistance.
• Higher labor costs from wage increases could lead to unemployment, higher prices for goods and services, and accelerate a shift toward workplace automation, opponents say.
• Some states have their own minimum wage laws. The state with the highest minimum wage is the state of Washington, where the minimum wage is $16.66 an hour.
What Is the Federal Minimum Wage in 2025?
The federal minimum wage in 2025 is $7.25 per hour. The last time the minimum wage increased was on July 24, 2009, when it grew from $6.55 an hour to $7.25. That was part of a three-phase increase enacted by Congress in 2007.
Tipped employees (like waiters) have a different minimum wage called the tipped minimum wage. The current federal tipped minimum wage is $2.13 an hour, as long as the worker’s tips make up the difference between that and the standard minimum wage.
Similar to the differences in the average salary by state, some states have their own minimum wage laws with a higher (or lower) starting wage than the federal minimum. In such states, employers must pay the higher of the two minimum wages.
Here are some minimum wage fast facts:
• The state with the highest current minimum wage is Washington, where the rate is $16.66 per hour. Washington state’s minimum wage is expected to increase in 2026 (the amount of the increase has not yet been announced). Although it’s not a state, Washington, D.C. currently has the highest minimum wage in the country — $17.95 an hour as of July 1, 2025.
• There are 67 cities and counties with minimum wages higher than their state’s minimum wages. Of these, the city of Burien, Washington, currently has the highest wage at $21.16 per hour for employees of large employers (those with more than 500 employees).
• Three states — Georgia, Oklahoma, and Wyoming — have minimum wages that are lower than the federal minimum. But by law, employees in those states must be paid the federal minimum wage.
• About 21 million US workers make less than $15 per hour, according to the most recent data (from 2023).
• While the minimum wage has been stagnant since 2009, inflation has not. The spending power of $7.25 in 2009 is equivalent to $10.92 today. This means that $7.25 can buy today about 66% of what it could buy in 2009, which can impact the cost of living.
What Is the Purpose of the Minimum Wage?
The federal minimum wage was created in the late 1930s as part of the recovery effort after the Great Depression. At the time, Congress found that low wages in certain industries were causing one-third of the population of the U.S. to be “ill-nourished, ill-clad, and ill-housed.”
As part of President Franklin D. Roosevelt’s New Deal program, the Fair Labor Standards Act (FSLA) of 1938 officially established the first minimum wage of $0.25 an hour. The FSLA also created the 40-hour work week, banned child labor, and mandated overtime pay.
The minimum wage was gradually increased to $0.40 an hour in 1945. It has been raised 22 times since then, with the last increase taking place in 2009, as noted above.
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The Argument for Raising the Minimum Wage
Increasing the minimum wage could be beneficial for low-wage workers and the labor market, proponents say. These are some of the potential benefits of raising the minimum wage.
Pro: Boosting Consumer Purchasing Power Amidst Inflation
Even without minimum wage increases, inflation has been on a rollercoaster ride over the last several years. At the end of 2019, inflation was 2.3%. By December 2023, it was 3.4%. In August 2025, inflation was 2.9%. That means today, the average American family is likely paying more for the average cost of groceries, among other expenses, than they were six years ago.
The Raise the Wage Act of 2025 was introduced in Congress in April of 2025 to raise the minimum wage to $17 an hour by 2028. The goal of the Act is to give American workers a raise and more buying power to make ends meet. As of September 2025, the Act has not been voted on.
While raising the minimum wage will not necessarily beat inflation, earning more money could make it easier for lower-income families to afford basic necessities.
Pro: Reducing Poverty and Income Inequality
Data from the Bureau of Labor Statistics shows that low-wage earners spend a larger portion of their budget than higher-wage earners on immediate daily needs like food, shelter, transportation, and medical care. Raising the minimum wage could give these workers more money to spend on other things, including discretionary items such as eating out, travel, and streaming services.
Increased consumer spending helps stimulate the economy. It’s a positive economic indicator reflecting consumer confidence in the market, and it typically creates more revenue for businesses.
Pro: Improving Employee Retention in a Competitive Labor Market
According to a study by researchers at the Kellogg School of Management at Northwestern University, workers with a higher minimum wage tend to work harder and are more productive. Not only that, earning a higher wage could be an incentive for workers to stay with a company longer, which can help reduce turnover.
That’s generally considered beneficial since employee turnover is expensive. Replacing an employee with a new candidate can cost about 50% of the worker’s salary or possibly more, according to the HR firm G&A Partners. In that case, it could make more financial sense for a business to pay an employee a better salary to keep them on staff, rather than recruiting and training a new worker to replace them.
The Argument Against Raising the Minimum Wage
Increasing the minimum wage could lead to higher prices and unemployment, opponents say. These are some of the possible cons of raising the minimum wage.
Con: Potentially Increasing Prices for Consumers
If business owners have to raise the minimum wage they pay workers, they would likely raise the prices of their products and services to help pay for the higher labor costs. As employers pass the higher costs along to their customers, consumers will end up paying more for the things they buy. That means their dollars won’t go as far as they used to, which could contribute to inflation.
Con: Risking Job Losses, Especially for Small Businesses
The increased labor costs of a higher minimum wage could be substantial. If the minimum wage increased to, say, $15 an hour, businesses would suddenly need to give raises to everyone making less than that.
But not all companies can afford that. Small businesses that have a slim profit margin could struggle in particular. Restaurants, for example, operate at a 3% to 9% profit margin. Increasing labor costs could shrink (or eliminate) their margins, meaning they might have to let go of some staff or even go out of business.
Con: Could Accelerate a Shift Toward Automation
Employees without specialized skills often work some minimum wage jobs to earn what might be considered entry-level salaries. But as employers are forced to pay workers more, companies might invest in automated technology or artificial intelligence (AI) to do these jobs.
According to one recent survey, approximately 30% of hiring managers said they would use automation or AI if the minimum wage was raised. This could make it more challenging for unskilled laborers to find work; other workers could lose their jobs to automation or AI. They might then have to go on unemployment or try to rely on popular side hustles to try to earn a living and pay their bills.
What Is the Predicted Economic Impact of a Federal Minimum Wage Increase?
There are differing views on how raising the federal minimum might impact the economy. An analysis by the Economic Policy Institute (EPI) found that the $17 an hour minimum wage increase proposed by the Raise the Wage Act of 2025, would provide an additional $70 billion dollars each year in wages to the lowest-paid workers in the U.S. The average worker in this category would make an additional $3,200 a year, the EPI estimates.
However, according to the Congressional Budget Office (CBO), which has also examined the potential impact of the Raise the Wage Act, while the wages and family income of many low-paid workers would likely increase with a higher federal minimum wage, for other families, income would fall due to business owners absorbing the cost of higher wages among other reasons. Overall, the CBO says the number of families in poverty would likely decrease.
But higher wages would likely cause some employers to employ fewer workers, the CBO says. That could result in more unemployed and jobless workers.
How a Changing Minimum Wage Could Affect Your Personal Finances
Beyond the potential impact to the economy, a higher minimum wage could have an effect on individuals’ finances as well — including yours.
For example, an increase in spending by low-wage workers can drive up demand for goods and services and help stimulate the economy and boost economic growth. Employees already making more than the minimum wage might even see their own earnings increase if employers feel pressure to compensate them as well.
But prices may go up as businesses try to offset higher labor costs. That means you might pay more for the things you buy. Employers may also hire fewer workers or make reductions in workforce. And they might also outsource or automate more jobs, which could negatively impact many individuals’ employment opportunities and result in more unemployment.
Fortunately, there are some steps you can take to help protect your own bottom line. Here are some strategies to consider.
Reduce expenses where you can. Take a look at the cost of living in your city or town. Is it reasonable? Or are housing prices and grocery prices more expensive in your locale? Those living in the most affordable cities might find that their dollars go farther. Even relocating a few towns over to one with a lower cost of living might help you save money.
Give your savings a boost. Let’s say you have a goal of saving up for a downpayment on a house, or establishing an emergency fund. One step you might want to consider is opening a high-yield savings account. These accounts have higher interest rates than traditional bank accounts, which could help your savings grow.
Make it simple. Automating your finances can make it easier to save. With direct deposit, for example, your paycheck will go right into your bank account — without you even having to think about it. You might even be able to get your money in there faster. For example, by setting up direct deposit to your SoFi checking and savings account, you can get an early paycheck.
The Takeaway
The original intention for creating a federal minimum wage was to enable workers to have a standard of living that would improve and maintain their health and well-being. However, today’s minimum wage of $7.25 an hour has not risen since 2009. Increasing the minimum wage has a number of potential benefits, but there are possible negative economic effects to minimum wage increases as well.
While the debate over this complex issue will likely continue, remember that you have control over your own finances. Establishing financial goals, and setting up a plan to save for them, can help you manage your money.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Why are state minimum wages different?
In general, states are able to enact laws that differ from federal laws according to their state needs. Many states with a higher cost of living, like California and Washington, have increased their minimum wage to roughly double the federal minimum. If a state’s minimum wage differs from the federal minimum wage, employers must pay the higher of the two rates.
Who benefits from a minimum wage increase?
Low-income workers can potentially benefit from a minimum wage cost, according to proponents of raising the minimum wage. That’s because earning a higher wage could give them more money to spend on things beyond basic needs like food, shelter, and medical care. For example, they could spend more on such discretionary items such as eating out, and streaming services. This kind of increased consumer spending might, in turn, stimulate the economy.
Does increasing the minimum wage affect cost of living?
It’s possible that increasing the minimum wage could raise the cost of living. This might happen if employers raise prices on the items or services they sell to help cover the cost of higher wages for employees. Higher prices, in turn, may cause inflation to rise, which means that dollars won’t go as far as they used to.
What state has the highest minimum wage?
The state with the highest minimum wage is Washington state, where the state minimum wage is currently $16.66 per hour, and it’s expected to increase in 2026. Although it’s not a state, Washington, D.C. has the highest minimum wage overall of $17.95 an hour.
What might be an opportunity cost of raising the minimum wage?
One possible opportunity cost of raising the minimum wage is that employers might reduce their labor force and lay off workers to help pay for the increased cost of higher wages. They might also automate certain jobs, which could result in more unemployment.
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