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

Your question touches cost-of-living, inflation and living-wage debates — I'll gather current data and arguments on both sides.

Does the minimum wage need to keep up with the cost of living? There are strong arguments on both sides - it depends on what you want the minimum wage to accomplish.

1. What "keeping up" means

The federal minimum wage in the U.S. was created in 1938 as part of the Fair Labor Standards Act. However, there is no provision to adjust for regular increases in costs of living. It has to be changed by Congress.

2. Arguments FOR keeping it tied to cost of living / inflation

A. Purchasing power has eroded dramatically:

The federal minimum wage is $7.25/hour. The last time the federal minimum wage was increased was in 2009. Since it was last raised to the current $7.25 per hour, the federal minimum has lost about 9.6% of its purchasing power to inflation. Another estimate notes that since it was last raised by Congress in 2009, inflation has cut its purchasing power by 17%.

Adjusted for inflation, the federal minimum wage peaked in 1968 at $1.60 per hour, which is equal to roughly $12 to $14 an hour today when adjusted for inflation. Other calculations put the 1968 peak equivalent at $10.15 in today's dollars.

> If the minimum wage had kept up with inflation, it would be $10.15 today – nearly three dollars per hour more than it is currently.
> If the federal minimum wage had kept up with productivity growth in the economy, it would have been $19.33 in 2017.

B. The current wage does not cover basic living expenses:

The current federal minimum wage does not provide enough income for families to meet their expenses. A worker earning the federal minimum wage of $7.25/hour makes only $1,250 a month, while the average family has monthly expenses of about $3,000.

A true living wage that supports a basic standard of living without food and housing insecurity would be between $20 and $26 or more per hour depending on the state. Additionally, it would need to adjust regularly to keep pace with inflation and cost of living increases.

Proponents argue:

This is why many states and cities have already adopted this strategy. It will ensure that the value of minimum wage will remain constant and wages will not lose value over time. Advocates noted that 10 states already do this, and as of Dec 2019, of the 47 states, cities and counties raising minimum wages, about half are doing so automatically based on the consumer price index.

3. Arguments AGAINST automatic cost-of-living indexing

A. Potential job losses and business pressure:

B. Inflationary pressure:

C. Regional differences:

A flat "one size fits all" wage does not consider the enormous local variations in cost of living and taxes. $15 per hour has very different purchasing power in Mississippi versus Hawaii or Washington D.C., where living wages are already $19.43 and $20.49 even for a single person without children.

4. Bottom line

If the goal of the minimum wage is to be a floor that protects purchasing power and prevents full-time work from leaving people in poverty, then most economists agree it needs to be indexed — otherwise inflation quietly cuts the wage every year. The current $7.25 wage has lost 29 percent of its value since 1968 and is the lowest it has been in the last 10 years in real (inflation-adjusted) terms.

If the goal is to minimize risks to employment, small business viability, and price levels, then automatic indexing without consideration of productivity, regional cost differences, or business cycles could create strain — especially for labor-intensive small businesses and in lower-cost regions.

That is why the modern policy debate is often not whether to adjust for cost of living, but how: