Does the minimum wage need to keep up with the cost of living?

Should the Minimum Wage Keep Up With the Cost of Living?

This is a genuinely contested policy question, but there's substantial evidence and argument on both sides worth laying out.

The Case For Indexing to Cost of Living

The erosion problem is real and well-documented. The U.S. federal minimum wage has lost significant purchasing power because it isn't automatically adjusted. In 2009, Congress increased it to $7.25 per hour with the Fair Minimum Wage Act of 2007, and it has not been increased since. Since then, adjusted for inflation, the federal minimum wage has lost over 30% of its purchasing power since 2009.

Historically, the wage's value has fluctuated dramatically depending on when Congress last acted. In 1968, its purchasing power peaked at $1.60 ($14.81 in 2025), and as a result of inflation in the decades since, this remains the highest purchasing power the minimum wage has ever had.

Advocates argue this creates unnecessary hardship. Groups supporting indexing make the case that minimum wage workers should not, uniquely among workers, get no increases in their wages during periods of high inflation—they are the workers most in need of having their incomes keep up with rising prices. They also point to practical benefits for employers: indexing the minimum wage assures that low-wage workers do not lose ground to rising prices and offers their employers predictable and steady changes in the legal standard.

States have increasingly adopted this model. Thirteen states plus the District of Columbia currently index minimum wage increases each year, and seven more states will begin indexing in future years. Evidence from these states suggests it works reasonably well: four states—Washington, Oregon, Vermont, and Florida—index their minimum wages to prices using the CPI, and in these states wages have maintained their purchasing power for hundreds of thousands of workers without adverse effects.

The Case Against (or Complications With) Indexing

Indexing alone doesn't guarantee an adequate wage—it just locks in whatever level you start at. Critics note a key limitation: indexing a minimum wage does not increase the minimum wage relative to prices or average wages; rather, it locks the wage in place. If the starting point is too low, indexing just preserves inadequacy. As one analysis put it, many cities and states have at least partially protected their wage floors by adopting automatic annual adjustments to account for inflation, but if the initial value is too low, this inflation-indexing only locks in an unlivable floor.

Cost of living varies enormously by region, which complicates a single national standard. Cost of living does vary between states and regions, but the minimum wage is still too low across the South and the Midwest—many metro areas in the South and Midwest are much more expensive to live in, with the living wage in Austin, Atlanta, and Charlotte exceeding $20 an hour. This raises the question of whether CPI indexing nationally is the right mechanism versus regionally-tailored living wage calculations.

There are also economic trade-off concerns. Research suggests minimum wage increases do have some pass-through to prices: one study found that a 10% minimum wage increase was associated with a 0.14 percentage point increase in the Consumer Price Index, while a study focused on the restaurant industry found a 10% increase in the minimum wage was associated with a 0.58% menu price increase. Opponents of minimum wage increases more broadly argue that raising wages artificially can spur business closures, layoffs, and more automation and outsourcing, though many economists dispute the magnitude of these effects, especially for modest, predictable indexed adjustments.

An alternative framing: indexing to wages/productivity, not just prices. Some economists argue CPI-indexing undersells what's fair, since over the past 50 years the CPI-U has gone up 740%, while the average wage for production, non-supervisory workers has increased by 922%. Restoring the minimum wage to its historical relationship with average wages would imply a different (often higher) target than pure cost-of-living indexing.

Bottom Line

There's broad consensus among economists and policy researchers that failing to adjust the minimum wage at all leads to serious erosion of low-wage workers' purchasing power — the current federal wage is a clear example. Most of the debate isn't really about whether it should track living costs in some fashion, but about:

Public opinion has shifted toward favoring some form of automatic adjustment — a 2023 Payscale poll found that 75 percent of HR professionals and others who set wages at companies believed that the minimum wage should be increased, and 66 percent believe it should increase automatically annually.