A $25 minimum wage cannot legislate away the high cost of living

Affordability is the political buzzword for 2026. Last week, Sen. Chris Murphy (D-CT) announced plans to introduce the Living Wage for All Act, which would raise the federal minimum wage to $25 per hour. His argument is straightforward: if Americans cannot afford basic necessities, the government should require employers to pay more.

But would a $25 federal minimum wage make housing, groceries, childcare, or health care more affordable? Americans are better off either by earning more, paying less for goods and services, or some combination of the two. The question is whether a higher minimum wage can deliver the affordability its supporters promise.

At its core, a minimum wage law sets the lowest amount employers are allowed to pay workers. Raising that wage makes hiring more expensive.

As CEI Research Fellow Sean Higgins has argued, few workers earn federal minimum wage, so it has little effect on labor markets. A more modest increase would have a modest effect, mostly in a narrow set of jobs and industries. A $25 per hour minimum wage, however, would affect far more workers and firms.

Since workers are part of nearly every good and service, higher labor costs show up throughout the economy, whether it is restaurants, homebuilding, health care, or transportation. And because affordability depends on the relationship between wages and prices, these adjustments help explain why higher minimum wages are not a reliable way to improve affordability.

In his study of minimum wage policy, CEI Senior Economist Ryan Young emphasizes that wage floors create tradeoffs. Employers respond to higher mandated labor costs through reduced hiring, fewer hours, higher prices, reduced benefits, and greater automation. These adjustments can limit gains in purchasing power, constraining the minimum wage as a tool for improving affordability.

A comprehensive review of US minimum wage research finds that the preponderance of evidence links higher minimum wages to net job losses, especially among younger and less-skilled workers.

Even if minimum wage did somehow cause net positive employment, it would only change one input price: labor. Consumer prices also reflect capital, intermediate inputs, technology, regulations, and trade barriers such as tariffs.

Because these cost drivers vary across sectors, no single input explains price levels across the economy. For that reason, changes to the minimum wage are poorly suited to addressing affordability pressures across major categories of household spending:

• Housing costs remain high in large part due to land-use regulations, zoning laws, and permitting bottlenecks that restrict new construction and limit housing supply.
• Health care prices are driven by regulation and third-party payment systems that distort incentives, constrain supply, and weaken competition, as CEI Senior Fellow Jeremy Nighohossian has shown.
• Transportation costs are also shaped by regulation, including the Jones Act and licensing rules governing commercial drivers, both of which raise costs in specific segments of the supply chain.
• Grocery prices reflect costs throughout production and distribution. The USDA Food Dollar Series shows how the consumer food dollar is divided across farm production, processing, transportation, and retail stages. In addition, regulations and price distortions can further increase costs by reducing efficiency.

Across these sectors, the pattern is consistent: prices are not primarily driven by insufficient wages, but by constraints that limit supply, competition, and productive capacity.

Americans should not have to struggle to afford the essentials. But affordability ultimately depends on producing more, removing barriers to competition, and lowering unnecessary costs. Higher wages cannot repeal zoning laws, build more housing, train physicians, remove tariffs, abolish the Jones Act, or eliminate a wide range of regulatory constraints.

If Congress wants to improve affordability, it should stop focusing on mandated pay increases and start dismantling the policies that keep everyday goods and services expensive.