Raising the minimum wage would put more money in the pockets of roughly 17 million low-wage workers, lift about 900,000 people out of poverty, and drive additional consumer spending, according to Congressional Budget Office estimates of a $15 federal floor. The same analysis projects about 1.4 million fewer jobs and modestly higher prices in food service and retail, which is why economists remain genuinely divided about the tradeoffs. The federal rate has sat at $7.25 per hour since July 2009, the longest stretch without an increase since the Fair Labor Standards Act was signed in 1938.
What the Federal Minimum Wage Is Now
Covered, nonexempt workers must be paid at least $7.25 per hour under federal law, a rate that took effect on July 24, 2009.1Office of the Law Revision Counsel. 29 U.S. Code 206 – Minimum Wage Full-time work at that rate produces about $15,080 a year before taxes.2Center for Poverty and Inequality Research. What Are the Annual Earnings for a Full-Time Minimum Wage Worker?
Fewer workers earn exactly the federal rate than most people assume. In 2024, about 843,000 hourly workers earned at or below $7.25, roughly 1 percent of all hourly employees.3U.S. Bureau of Labor Statistics. Characteristics of Minimum Wage Workers, 20244U.S. Department of Labor. State Minimum Wage Laws5Office of the Law Revision Counsel. 29 U.S. Code 218 – Relation to Other Laws A federal increase still matters because it resets the floor in the roughly 20 states without a higher rate and lifts the baseline everywhere else. The most prominent current proposal, the Raise the Wage Act of 2025, would step the federal rate up to $17 by 2030, roughly $35,360 a year for a full-time worker.
Bigger Paychecks and Less Poverty
The most direct effect is straightforward: low-wage workers take home more. At $15 per hour, full-time annual earnings reach about $31,200, above the 2026 federal poverty guideline of $27,320 for a family of three.6Federal Register. Annual Update of the HHS Poverty Guidelines CBO estimated a $15 floor would lift about 900,000 people out of poverty.7Congressional Budget Office. The Budgetary Effects of the Raise the Wage Act of 2021
That extra income doesn’t just cover groceries. Workers living paycheck to paycheck face constant tradeoffs between rent, food, utilities, and medical bills. A meaningfully higher wage doesn’t erase those pressures, but it can move a family from choosing between prescriptions and electricity to covering both. More predictable earnings also reduce reliance on payday loans and revolving credit card debt, which compound poverty over time.
Ripple Effects Through Consumer Spending
Low-wage workers spend nearly every additional dollar they earn. Research from the Federal Reserve Bank of Boston found that the marginal propensity to consume among low-wealth households is roughly 10 times larger than among wealthy ones. Wage increases flow quickly into local economies through rent, groceries, and purchases at nearby businesses rather than sitting in investment accounts.
That spending compounds. A restaurant with more customers orders more from suppliers, who pay more delivery drivers, who spend their own wages locally. Economists call this the multiplier effect, and it’s the main channel through which raising the wage floor translates into broader growth. Higher sales volumes also generate more sales tax revenue for local governments without any change in tax rates. The effect is strongest in lower-income communities where a large share of residents earn near the minimum.
Effects on Government Safety Net Programs
When employers pay wages low enough that workers qualify for public benefits, taxpayers effectively subsidize those payrolls. A higher minimum wage shifts some of that cost back to the private sector.
SNAP eligibility generally requires household gross income below 130 percent of the federal poverty level, which works out to about $2,888 per month for a family of three in 2026.8Food and Nutrition Service. SNAP Eligibility A single full-time earner at $7.25 grosses about $1,257 per month, well within that range. At $15 per hour the same worker earns roughly $2,600 monthly, still eligible but with less of a gap for the program to fill. At $17 per hour, monthly earnings reach about $2,947, which would push a family of three above the SNAP gross income cutoff.
Similar dynamics apply to Medicaid and the premium tax credits available through the Health Insurance Marketplace.9Internal Revenue Service. The Premium Tax Credit – The Basics Some workers move from Medicaid to employer coverage or subsidized private plans as earnings rise. CBO estimated a $15 floor would reduce federal spending on nutrition programs and shift some workers off Medicaid, though the net budget impact is complicated by higher costs for federal contractors and for goods the government buys.
One wrinkle: higher wages can reduce the Earned Income Tax Credit for some workers. A single filer with one child begins losing EITC benefits once earnings exceed $23,890 for the 2025 tax year. Most workers still come out ahead, but the interaction isn’t as clean as “more pay, fewer benefits needed.”
What Happens on the Employer Side
Turnover is one of the most expensive problems in low-wage industries. Recruiting, screening, and training a replacement worker costs real money and disrupts operations for weeks. When employers raise pay, workers are less inclined to leave for a marginal bump elsewhere, and the stability shows up in fewer scheduling gaps, more experienced staff, and less time on onboarding. Efficiency wage theory adds a motivational piece: workers who feel fairly paid put in more effort, call in sick less, and make fewer costly mistakes. Restaurants and retailers that have voluntarily raised starting pay consistently report lower turnover and improved customer service.
The costs are real too. CBO’s analysis of a $15 federal minimum estimated 17 million workers would see direct pay increases, but about 1.4 million jobs would be lost, a 0.9 percent reduction in total employment.7Congressional Budget Office. The Budgetary Effects of the Raise the Wage Act of 2021 The range around that central estimate ran from close to zero to 2.7 million, which reflects genuine disagreement among economists about how employers respond.
Job cuts aren’t the only response. Some employers trim hours rather than headcount, leaving workers with a higher hourly rate but a smaller paycheck. Others raise prices. CBO found a $15 minimum would push overall prices up modestly, with the biggest effects in food service and retail. For lower-income consumers who spend a large share of their budgets in those categories, price increases can partially erode the gains from higher wages.
Small businesses feel a tighter squeeze than large corporations because labor is usually a bigger share of their total costs. Research covering 30 years of state and federal minimum wage changes found small businesses generally adapted without widespread closures, often by passing costs to consumers, but effects vary sharply by region. A $15 floor in a high-cost city is very different from $15 in a rural county where the median wage might be $14, and a single federal rate hits harder in low-cost areas.
Tipped Workers, Youth, and Exempt Employees
The federal minimum wage isn’t a single number. Tipped employees have a federal cash minimum of $2.13 per hour, with employers claiming a tip credit of up to $5.12 to reach $7.25.10U.S. Department of Labor. Minimum Wages for Tipped Employees If tips don’t get a worker to $7.25, the employer must make up the difference, though enforcement is uneven. Most current proposals would gradually eliminate the tipped subminimum, which would be the largest wage increase for restaurant workers.
Workers under 20 can legally be paid a youth training wage of $4.25 per hour during their first 90 consecutive days of employment.11U.S. Department of Labor. Wages for Youth Salaried employees who meet certain duties tests and earn at least $684 per week are exempt from FLSA minimum wage and overtime protections entirely.12U.S. Department of Labor. Earnings Thresholds for the Executive, Administrative, and Professional Exemption Any minimum wage increase has different effects depending on a worker’s age, occupation, and pay structure.
Enforcement Matters at Any Wage Level
Whatever the rate is set at, it only helps workers who actually get paid it. A worker who believes they’ve been underpaid can file a complaint with the Department of Labor’s Wage and Hour Division or file a private lawsuit. The statute of limitations is two years, or three if the employer’s violation was willful.13Office of the Law Revision Counsel. 29 U.S. Code 255 – Statute of Limitations A successful claim can recover unpaid back wages plus an equal amount in liquidated damages, along with attorney’s fees.14eCFR. Recovery of Wages Due; Injunctions; Penalties for Willful Violations Employers who repeatedly or willfully violate federal minimum wage rules face civil penalties of up to $2,515 per violation.15U.S. Department of Labor. Civil Money Penalty Inflation Adjustments The tools exist regardless of whether the wage floor rises, but they matter more as the amounts on the line grow.