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

Your question touches cost of living, inflation, and wage policy — I'll dig into current evidence before answering.

Whether the minimum wage should keep up with the cost of living depends on what you think the minimum wage is for - but economically, if it doesn't keep up, its real value falls.

1. What "keeping up" means

Cost of living is usually measured by the Consumer Price Index (CPI), including the CPI-W for urban wage earners.

"Keeping up" means indexing the wage to inflation to maintain employee purchasing power. To "maintain" means to "preserve from failure or decline" or to "keep up" - rising and falling with the cost of living.

Some states already do this:

By contrast, the U.S. federal minimum wage is not automatically adjusted:

> Nothing in the law requires it to keep pace with inflation, productivity, or any measure of what things actually cost

And Ontario's example shows an inflation adjustment can still bear no relation to the cost of living - it is an arbitrary amount.

2. Arguments that it should keep up

a) Purchasing power has collapsed when it doesn't:
The federal minimum wage sits at $7.25 per hour, unchanged since July 24, 2009. That is 17 years without a raise, the longest freeze in the 88-year history, and it has lost about 27% of its purchasing power by mid-2022 and 30% in that time.

The purchasing power peaked in 1968. In today's dollars, that 1968 minimum wage would equal approximately $12 to $14 per hour when adjusted purely for inflation, and other estimates put it at roughly $15 in today's dollars. If it had kept pace with both inflation and productivity growth, it would be around $23 to $24 per hour today.

Because the federal minimum wage is not indexed, its real value erodes every year it stays the same.

b) Cost of living keeps rising:

Supporters argue tying the minimum wage to inflation can help sustain workers' ability to cover their expenses and afford essential goods and services as the overall cost of living increases.

Indexing the minimum wage to inflation can help ensure that it keeps up with the cost of living... provide workers with a stable income while also reducing the need for frequent minimum wage increases.

Without indexing, a full-time federal minimum wage worker earns $15,080 a year, which is below the 2026 federal poverty line, and politicians have been criticized for intervening to keep it that way.

3. Arguments for caution or against automatic cost-of-living indexing

Opponents don't necessarily dispute that costs rise, but argue about side effects and design:

a) Employment and business costs: Raising the minimum wage would increase the cost of labor for businesses, which could lead to layoffs or reduced hours for workers. Small businesses, in particular, might struggle to absorb the additional labor costs.

The non-partisan CBO reports that even over a 10-year period, a $15 minimum wage will increase unemployment by 1.4 million people.

b) Inflation feedback loop: 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 by workers.

Arguments against constantly increasing the minimum wage coalesce around higher labour costs without matching productivity gains, inflationary pressures in labour-intensive sectors, and reduced hiring.

c) Regional differences: A uniform national wage indexed to a national cost of living ignores variation.

> Washington, DC has a cost-of-living index of 154.7, while my home state of Kentucky has an index of 94.5. Demanding that rural areas pay urban wages without raising prices or laying off employees is fantasy.

This is why scaled minimum wages already exist informally between and within different states. Oregon and New York already determine minimum wage by metropolitan area.

4. Common compromise proposals

Many economists agree that ultimately, the minimum wage should be attached to inflation, essentially the cost of living - but with adaptations:

In short:

There is no legal requirement in the U.S. for the federal wage to track living costs, which is why the debate is political rather than automatic.