Your question touches on wages, inflation and living costs — I'll gather recent context to lay out the case for and against indexing the minimum wage.
Whether the minimum wage needs to keep up with the cost of living depends on what goal you think the minimum wage should achieve. There are two main views:
1. What "keeping up" means
The federal minimum wage is not required by federal law to be raised for inflation every year, unlike Social Security and many other parts of the tax code. As a result, its real (inflation-adjusted) value tends to fall in the years between enacted increases.
In practice, "keeping up" usually means one of two things:
•Inflation indexing: Automatically adjusting the wage based on an inflation measure like the Consumer Price Index (CPI), so its purchasing power stays constant.
•Cost-of-living / living wage: Setting the wage high enough to cover basic living expenses like housing, food and healthcare in a specific area. Every state and region have different costs of living, so different wages would constitute a living wage.
2. Historical context: the federal wage has lost purchasing power
•The federal minimum wage has not changed since 2009, despite inflation. It was last raised in 2009, from $6.55 to $7.25 per hour.
•During that period, its real value fell: Such declines in the purchasing power lower minimum wage value occurred as happened during the 1980s when the real value fell by 30 percent, from the mid-1990s until 2007 (20 percent decline), and after 2009 (14 percent decline).
•Adjusted for inflation, $7.25 had already lost 27% of its purchasing power by mid-2022, and one analysis puts the wage floor at its lowest real value in 70 years.
•The minimum wage's purchasing power peaked in 1968. That 1968 minimum wage would equal approximately $12 to $14 per hour when adjusted purely for inflation. Other calculations put it at $12.00 per hour in 2021 or $8.56 (in 2012 dollars).
Because of this erosion, the argument that the cost of living has increased significantly over the years, but the minimum wage has not kept up with these increases is central to the current debate.
3. Arguments for keeping up with the cost of living
Proponents say raising it could help low-wage workers escape poverty and keep up with inflation.
Specific benefits cited include:
•Maintains real value: Helps maintain the real value of minimum wage and that it should be adjusted to keep up with the cost of living and reflect the economic conditions of the region.
•Improves standard of living: Improves the standard of living for minimum wage workers, provides workers with a living wage, which would help to reduce poverty and improve their overall quality of life.
•Economic stimulus: A higher minimum wage would also stimulate the economy by increasing consumer spending, as workers would have more money to spend on basic goods. Workers who are able to earn more than the cost of living contribute more to the economy, because they have more money to spend and are less likely to default on debts.
•Reduced public assistance: Studies have shown that increasing the minimum wage can reduce reliance on public assistance programs such as food stamps, Medicaid, and housing assistance.
4. Arguments against automatic cost-of-living increases
Opponents argue that higher labor costs from wage increases could lead to unemployment, higher prices for goods and services, and accelerate a shift toward workplace automation.
Other concerns include:
•Job losses and reduced hiring: Risk of potential job losses, The minimum wage can be a barrier to entry for many low-skilled workers, and Raising the minimum wage would increase the cost of labor for businesses, which could lead to layoffs or reduced hours for workers.
•Inflation: Some argue that a higher minimum wage would lead to inflation, as businesses would increase their prices to cover the increased labor costs. Critics also contend that increasing the minimum wage can drive up prices as businesses pass on the higher labor costs to consumers, potentially eroding the purchasing power gained.
•Small business impact: A higher minimum wage could also make it more difficult for small businesses to compete with larger corporations, as they may not have the financial resources to absorb the increased costs, with arguments also citing significant pressure on small businesses and weaker regions, as well as wage compression and weaker promotion incentives and reduced hiring, particularly of young and inexperienced workers.
•One size doesn't fit all: A single wage rate cannot establish a living wage for all occupations throughout the country, which is why regional differences matter.
5. How some places handle it
Rather than waiting for Congress to act, many states have adopted indexing.
•Roughly 19 states and D.C. have taken the step Congress has not: they automatically adjust their minimum wage each year based on changes in consumer prices.
•More recent counts show 20 states and DC that currently, or eventually will, use indexation to adjust state minimum wage rates, with states like Arizona, Montana, Oregon, South Dakota, Vermont, and Virginia indexing to the national Consumer Price Index for All Urban Consumers (CPI-U).
•The indexed model aims to ensure minimum wage keeps pace with the rising cost of living and reduce political interference in wage decisions.
Even in indexed states, the indexed rates still fall short of most living wage calculations in expensive metro areas, which is why some cities set higher local wages.
Bottom line
•If the goal of the minimum wage is to be a floor that preserves purchasing power over time, then logically it needs some mechanism to keep up with inflation / cost of living, or it will steadily lose value as seen since 1968 and 2009.
•If the goal is to maximize employment and avoid business cost pressures, especially for small businesses and lower-cost regions, then automatic cost-of-living increases may create trade-offs that some economists and business groups argue outweigh the benefits.
Many policy proposals try to balance both by indexing to inflation but with caps, regional adjustments, or gradual phase-ins rather than a single abrupt national increase.