How Raising The Minimum Wage To $25 Could Affect Jobs

A proposal backed by Rep. Alexandria Ocasio-Cortez and other progressive lawmakers would raise the federal minimum wage to $25 an hour, and that sounds simple until you do the math. At full-time hours, $25 an hour equals about $52,000 a year. In other words, this plan would make a $50,000 annual salary the new wage floor.

How a Minimum Wage Increase Would Affect Louisiana

That matters in Louisiana because the state does not have its own minimum wage. Louisiana follows the federal minimum wage of $7.25 an hour for most covered workers. Supporters of a higher wage argue that $7.25 has not kept up with rent, groceries, insurance, transportation and basic family needs.

That is a fair concern. It is hard to argue that $7.25 an hour goes very far in Shreveport, Bossier City, Monroe, Baton Rouge or anywhere else.

But, the bigger question is what happens after the wage goes up.

What Happens to the $50,000 Worker?

This is where the debate gets more complicated. If the new minimum wage becomes $25 an hour, then a worker currently making $50,000 a year is no longer comfortably above entry-level pay. That person may be a shift leader, assistant manager, bookkeeper, experienced technician or office worker. So, logic demands their pay be raised as well.

If new or lower-skill positions are suddenly paying the same, that employee will likely expect a raise too. Then the person making $60,000 wants distance from the $50,000 worker. The person making $70,000 wants distance from the $60,000 worker. That chain reaction is called wage compression, and businesses would have to deal with it quickly.

Prices Usually Follow Costs

Businesses do not pay wages with imaginary money. They pay them from sales, donations, contracts, service fees or product prices. If payroll costs rise sharply, many businesses will respond by raising prices, cutting hours, hiring fewer workers, using more automation or reducing benefits.

That does not mean every business would collapse. It does mean customers would likely feel it. A burger, haircut, repair bill, daycare payment, oil change or hotel room could all cost more if labor costs rise across the board.

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The proposal may sound compassionate, and for many workers it would mean a real raise, but everything will cost more. Still, Louisiana families should ask the next question too: if $50,000 becomes the new minimum, how long before everything else becomes more expensive?