Are Minimum Wages Important?
Those of you may be wondering why I would discuss this topic (having taken it from a recent EPI article). For a few years I did consulting work with a midsize firm. In most cases, we did not find Labor to be the largest cost of manufacturing product. Whacking Labor with low wages will not get you far in competing with other competitors. Minimum wages are important. Wages commensurate to the value of the input are even more important. Anyway, read on . . .
“Adjusting minimum wages for inflation is a necessary step towards protecting affordability for low-wage workers: “
The case of California’s Fast Food Council | Economic Policy Institute
In 2024, the California Fast Food Council (composed of worker, industry, and government representatives) instituted a $20 minimum wage for workers at large chain fast-food restaurants. The Council also protects the wage standard from inflation by raising it dues to annual increases in the consumer price index or 3.5% (whichever is lower).
When the Council was to discuss a wage adjustment in June 2025, the chair had resigned. The issue was postponed until the governor names a new chair. Almost two years have passed since the initial setting of the $20 wage standard. The passing year and a half have experienced continual inflation. The Council should prioritize a cost-of-living adjustment in 2026 to prevent rising prices from erasing past gains made by fast-food workers. One impediment to the adjustment is opposition from fast-food restaurant operators. They argue the raising workers’ pay to $20 damages their businesses and they cannot absorb any further increases.
This debate in California between fast-food workers and employers highlights the importance of regular and automatic adjustments to wage standards (like minimum wages) ensuring inflation-adjusted living standards for low-wage workers do not erode over time. I am not going to list the reasons for the importance of such here as it can be read. in the EPI article.
Are Wage Standards Necessary?
The premise for such? Low-wage employers rarely negotiate or discuss pay with workers. Instead, workers are given a take-it-or-leave-it wage offer. If a given employer lets its own wages lag those of potential competitors? A workers’ exit from the lower-wage firm is far less common than would be predicted under truly competitive labor markets where employers compete for workers.
Job search barriers give employers excess market power over workers even when there are numerous employers. Barriers include a lack of information about wages, policies of other employers, transportation restrictions requiring workers to look for jobs only in places near their home or public transit nodes, childcare considerations that require a job’s location be compatible, etc.
Employers use barriers to employees finding better outside options to “decrease” wages below what would be necessary for employers to attract and retain workers in competitive labor markets. Decreases in pay can be enough to push workers’ pay well below the value they produce for the employer, making pay levels inefficient.
Within the total economy, excessive power of employers in labor markets and their ability to markdown wages can be seen in the gap between economy-wide productivity (the amount of income generated in an average hour of work in the economy) and the hourly pay (including benefits) of typical workers (see graph).
What the graph (above) does is show the decrease in wages as compared to productivity. Keep in mind, Labor content within a product is typically far less than the cost of the other product components. The author’s contention is the use of wage standards (like minimum wages) can correct an excess of employer power. This may be necessary where there is little other resource where Labor can go to exact a better wage.
Also with low-wage workers having higher pay and living standards, such moves the economy to a more efficient allocation of workers across jobs. It can in theory even lead to an increase in employment.
Employer power in labor markets and the inefficiency of labor market outcomes without wage standards can help explain the general empirical finding. Minimum wage increases in the United States have not caused significant employment declines. The author’s finding is counter to what one would expect if labor markets were competitive. One example is; The current evidence suggests California’s fast-food minimum wage is no different in that it has raised wages without causing large, negative employment reductions.
The divergence looks to start around 1960, so why draw the line and base calculations on 1979? This post is advocacy for a specific measure that is desired in California. The use of fast food industry is logical in that wage levels are near the minimum wage, but I find at least one of the arguments unconvincing. For example, the industry was extremely transparent on wages in NE Wisconsin for the period 2021 – 2024. Starting wage and shift premium information was frequently right on their main street signs for months at a time, often right in sight of other such signs. The Subway employee who had no idea of what maybe TacoBell, Dunkin’, McDonalds, KwikTrip or even Walmart and Pick n Save (grocery) might pay had to have been very unobservant and incurious for years on end.
“Fast food income in Wisconsin is among the lowest in the nation, with state wages often struggling to keep up with the cost of living. As of March 2026, Wisconsin ranks 50th out of 50 states for fast-food salaries.
Low Minimum Wage: Wisconsin’s minimum wage has remained at $7.25 per hour since 2009, which is widely considered unlivable.”